Largest Red Week Since September 3rd For SPX. Buyable Dip, or More Red Ahead? November 18th Plan
NOTE: This is a resend of the newsletter for Monday November 18th, originally sent out on Friday at 4pm, for those who did not receive.
It took its time, but after last weeks historic rally we finally got a significant pullback. Last week was the largest green week of 2024, rallying 330+ points. This week, was the largest red week since September 3rd, retracing a good chunk of it. I very frequently write that we never need to guess when sells will come, nor do we need to top pick. Last week, amateur traders were shorting the entire way up, draining capital, incurring opportunity cost, only to likely miss this move in the end. This type of behavior is premised on two fallacies. 1) That they will successfully time a top - they won’t. 2) That ES will just “V” top and if they don’t rush in short, they’ll miss a sell. This isn’t how it works, and tops are processes, not events.
What did ES do instead from Monday-Thursday this week, after last weeks rally? What it usually does after a rally: It build out a large, three day flag with a clear, breakable support structure largely around 5998. While many blew accounts shorting last week, professionals patiently wait for structure to form, mature, then waited for the structure to break to react short. Yesterday, we broke the 2 day structure down and I wrote at Wednesday at 4pm: “Bear case tomorrow: Begins on the failure of 5998….I’d look short below the lows of that bounce. It may be something like 5991 but could be higher….below there we could unwind quite hard and go into knife catch mode where we could sell for many hours or potentially a full session”. Yesterday, we lost 5998. At first the sell was slow and choppy, before accelerating overnight into today.
I wrote yesterday at 4pm: “We are in a pullback now until proven otherwise. As I’ve said for days because of how substantial this rally has been we could easily pullback 100, or 200 or even 300 points and it wouldn’t hurt the bull case at all. I’d see a pullback all the way down to 5886 or so as being very healthy and it wouldn’t harm the broad bull case in any way shape or form”
Today, we got down to 5886. The question now becomes, is this a buyable dip, or is more selling ahead? In today’s newsletter I’ll talk this, I’ll do a deep dive into yesterdays breakdown short as its a rare example of my third setup type (The Breakdown Short). This is a rare setup type, and its entire purpose is to filter the real breakdowns out from the traps/Failed Breakdowns. Finally, I’ll discuss the actionable trade plan for tomorrow.