Monster Breakout For SPX. Will CPI Tomorrow Spoil The Rally? May 13 Plan
Patience paid in a massive way to start this week. As readers know, I had been long since last Wednesday at 5605-07, something I verified at the close on Friday, stating: “I am still holding my 10% long runner from the 5684 Failed Breakdown last evening (discussed above) but this is ultimately still going from the FOMC day failed breakdown of 5605-08 discussed above as well. Given my low cost basis on this, I have no issue holding over the weekend.” This long ultimately paid out 250+ points.
While this Sunday’s large gap up with driven by Trade Deal headlines, the “smart money” was positioning all last week - as always - and the signs were clear. Firstly, as I’ve said everyday since April 6th, ES has been in what I’ve called “buy dips mode”. Readers are probably sick of hearing it by now, but every newsletter since April 6th, I’ve started by reminding readers of the broad regime. Even as day traders, we need to know who controls (bulls or bears). Is it buy dips, or sell bounces? I’ve made it brutally clear every day for the last month, so readers don’t make the error of fighting strength.
As readers also know though, institutions buy dips in a very particular way. They find a low or cluster of lows, flush it, run stops, trap retailers who are chasing short, then use all that liquidity to absorb their buy orders. This produces - on the chart - my core setup and edge: The Failed Breakdown. Last Wednesday after FOMC, we saw the mother of all Failed Breakdowns. I wrote last Tuesday at 4pm: “Below 5620, we should see a new low to 5597-5600. Instead of just buying this, a safer bet is to wait for the Failed Breakdown of today’s low which is just a little above at 5607.” We saw exactly this last Wednesday, we sold down to 5597-5600, put in a Failed Breakdown of last Tuesdays lows at 5607-05 in the process, and the leg up began.
This trigger occurred in the context of a 1 week bull flag pattern that ES spent the first half of last week building, and I was looking for this Failed Breakdown to be the final trigger for an ultimate breakout, with 5736 being my first major target. I confirmed this last Wednesday at 4pm, stating: “We remain in a large consolidation now, and its a flag. My general lean is always to defer to the trend. We can fill this out, then breakout sees 5698, 5720, 5734-36.” On Thursday we hit 5736, which was basically the high of week, then sold off and spend Friday largely basing out.
This week, it would be bulls job to run it. My lean was that they could. I wrote on Friday: “On Wednesday evening, ES broke out a bull flag (this structure is shown in green in the above chart) and support will roughly be at 5646-51 Monday….the next leg up targets 5745-48, 5771, 5796-5802.” We got to 5802 and beyond to start this week.
Its been a staggering leg up and ES hasn’t had a proper selloff since April 21st. How much more in the tank? CPI tomorrow likely decides.In today’s newsletter I’ll talk this, I’ll do a deep dive into the Failed Breakdown on Thursday/Friday that ultimately was the final trigger for this leg up. It essential to know how this works. Finally, I’ll discuss the actionable trade plan for tomorrow.