Massive Bear Trap For SPX, Is A Bottom In? September 12 Plan

My newsletter yesterday was entitled “CPI Day Tomorrow, Expect Volatility in SPX”. We certainly got it, as always and I do not overemphasize the volatility of CPI days for no reason. September usually promises volatility and so far, its delivered with this September having a little something for everyone. The month started off with the largest single red weekly candle since March 2023. As I discussed yesterday though (and as anyone who has ever traded a downtrend or bear market in ES knows), for every “elevator down” move in ES, there is a correspondent short squeeze. For every action, there is an equal and opposite reaction and in ES, whenever there is a big red move down (like we saw last Friday), one can expect a short squeeze.

This concept would be key for today’s CPI day as well as we saw another “elevator down” move, followed by short squeeze. As I wrote yesterday, CPI days have one common feature: They trap: “Rule 2: CPI days are characterized by traps. Some days, they are very clean and one directional, but most often the first move, and often the second and third are traps.It is for this reason that I prefer to trade failed breakdowns on CPI days…..Wait for a level to flush, run stops, and reclaim before entering.” We saw this today, with an initial spike down to 5472, rally to 5505, followed by a monster sell down to 5414, losing yesterdays 5448 lows. This set up the short squeeze. I wrote yesterday: “5438 is a level we have not backtested yet, so this a spot on a normal day I’d happily be longing. On CPI day, you will have to “read the room” though. If we are melting down at full speed it is wiser to wait for 38 to test, then recover today’s 5448 lows to try longs”. This was a classic CPI trap, and we flushed yesterdays lows recovered, then violently squeezed back to 5519 by the the afternoon today.

I concluded my newsletter yesterday by writing: “If I had to give a lean it is that ES simply continues this relief rally. There are more magnets to the upside that need to be tagged, and these include 5519, 5528, then 5560” and we got to 5560 right before the close. Where does this leave us? In today’s newsletter I’ll talk this, I’ll talk about the idea of control and how to determine if and where bulls control or bears control. I will also discuss an important variation of my core setup: The Failed Breakdown. Finally, I’ll talk the actionable trade plan for tomorrow.