New All Time Highs Obtained For SPX. New Leg Starting, Or Will It Fizzle Out? July 11 Plan
I frequently talk in this newsletter about how price only does two things. It consolidates (I call this Mode 2), and it trends (I call this Mode 1). Price spends about 90% of the time consolidating, and 10% of the time trending. Furthermore, price cycles between these two things. Consolidation produces trend, which produces consolidation, indefinitely. Typically, these consolidations will form a classical chart pattern and the trend move that follows the consolidation is often in proportion to the size of the consolidation. This basic cycle has described the last three weeks.
For the two weeks prior to June 23rd, ES was in consolidation and the pattern was a massive bull triangle. I provided this setup way back on Friday June 20th at 4pm when we were 6020, by stating: “My general lean is always to defer to the trend, until it ends. 5978-82 to 6081= a range (descending triangle). My lean is we work back up to 6050, then 6081. Above there, we can try breakout.” As a general rule in technical analysis, two week structures lead to two week rallies and this is precisely what we saw for the two weeks prior to this week. We rallied for 10 days exactly following June 23rd. The traditional “measured move” target for a rally of this size was roughly 6325 as readers knew, and by last Thursday, we hit 6333 which was the high and this completed the triangle.
What happens after a 10 day trend move? Its time to return to consolidation and this is something I warned about on Friday when I wrote: “We should not be surprised t all to see more complex corrective (pullback) or consolidative action as the market digests and resets after this leg up.” This is what we spent the start of this week doing, and the new range has generally been 6250 to low 6300s. I stated Tuesday that “My general lean is always to defer to the trend. 6250-6288 is now an extreme chop zone in ES. In the most extreme bull case, ES will hold 6271 (or trap below). Above there, we run to 6303-05, then 6320+.” Tuesday evening, we trapped below 6271, then ran to 6315 high of day. We began filling the range.
What was the new pattern here? Yet again, a triangle. I confirmed at the close yesterday: “On a short term perspective, the bull case is ES is building a new triangle 6311 to 6252 now with 6277 magnet. We are near resistance now. We could fill this out more but the bull case would be this breaks out, and targets 6319, 6325-30.” By this morning, we tagged 6325-30 target.
In today’s newsletter I’ll talk this, I’ll do a deep dive into two quality Failed Breakdowns (my core setup) we had on Monday this week on the recovery of 6260, and Tuesday this week on the recovery of 6271. These propelled the rally we saw from Monday’s low into yesterday’s high. As I often say patterns are interesting, but when it comes to making money, we need to execute and on that front, all I care about is failed breakdowns. Finally, I’ll discuss the actionable trade plan for tomorrow.