Largest Intra-day Squeeze In The History of SPX, But Is It A Bottom? April 10th Plan
As readers know, I specialize in one setup type: The Failed Breakdown which causes a short squeeze. This is a long trade and for this reason many new traders may be shocked to learn that most lucrative time for this setup is not in uptrends or bull markets, but in downtrends and bear markets. This is because in the biggest squeezes aren’t in up-trends, they are in downtrends, and we saw this in action today, producing what may have been the largest intraday squeeze in the history of the S&P 500.
Rewinding a little first though, I wrote on Friday at 4pm that in the context of a downtrend, ES only does two things: “Price goes elevator down, then it short squeezes.” In other words, every sharp flush in ES is followed by an equally or more vicious squeeze and these squeezes have a singular cause: My core setup, the Failed Breakdown. Elevator down sells - on the other hand - are caused by my third setup type, the Breakdown Short. These cycle over and over, day after day, week after week, month after month as a downtrend drags on, as it has since February. We saw the entire gamut this week. After selling 200+ points on Sunday down to 4836, at 9:50AM Monday morning, ES put in a Failed Breakdown of the 4910 level, which I tweeted out in real time. Minutes later ES saw the largest short squeeze in its history (until today): 373 points in minutes to 5287, and this progressed further into Tuesdays 5300 high.
From here, we got “Elevator down” and we sold down to 4945 low of day yesterday, then lower into 4875 at 1:30AM this morning.
You know what comes after a sell like that: The Short Squeeze and this one was one for the history books yet again. I wrote yesterday at 4pm: “Below 5945 is 4896 and this may be the final support before ES makes a new low. I’ll be watching the reaction at this level. If its an organized sell into it, I may give it a bid, but if we are melting down on yet another huge trade war headline, let it flush perhaps down to 4875 and recover to attempt longs.”
We saw exactly this. Early this morning at 1:30AM we tested 4875, held exactly, recovered 4896 to trigger longs, and the rally began and this took us to 5075 by 1pm, after which ES went parabolic driven by a headline to 5515-20 by the close for a staggering 500+ points move and this was likely the largest intraday squeeze in the history of the S&P 500. I wrote yesterday: “Bulls need to recover 5025 to re-test 5075. Above there, ES can start a squeeze back up the levels to 5130, 5155, 5215, then 5288 again” and we got to 5288+ with ease.
One squeeze doesn’t mean a bottom is in though. In fact, squeezes are a characteristic of bear markets. What comes next? In today’s newsletter I’ll talk this and I’ll run down the setup that triggered todays long and the setup that triggered Mondays similarly violent squeeze. Finally, I’ll discuss the actionable trade plan for tomorrow.