October Starts With A Bang For SPX. More Red Ahead? Oct 2nd Plan

October started off with a bang in ES, selling right off the open today - helped by geopolitical headlines - and readers may get a little Deja Vu from this as its exactly how the first full trading day of September started: With a deep flush lower. At the time, this provoked all the usual calls of “September bearish seasonality”, with most expecting a month of deep red. The market however, did what it is built to do, it trapped, and we ended up closing September nearly 380 points off the September lows.

I spent all September cautioning traders to remain bullish, and focus on trading the traps alongside the institutions. September concluded yesterday with a monster rally into the close - a fitting end to what was a very bullish month. However, markets trap by their nature as I say daily, and this was bulls turn to get trapped. I wrote in yesterdays newsletter at 4pm: “If 5799 fails, there is a good chance that this late day rally was a trap (remember, most moves are traps. What is rare is when a move isn’t a trap. In other words, I am never shocked by traps, I expect them, and assume that will happen on each move. What shocks me is trend moves)”. ES got to work right off the open today, losing 5799 and starting a flush down.

From there, ES then lost the critical 5777 level, taking the sell into over-drive and putting bears formally in control, and I wrote yesterday: “Bear case tomorrow: Begins again on the fail of 5777….As always, I don’t chase. This 5777 zone is so well tested now it doesn’t really need anything to fail now and could easily just flush through and plunge”. I also wrote: “If 5777 fails, we try a flush again, and I have a feeling bears will be much more successful than they were today”. Plunge it did, and we flushed into the 5730s before returning to 5777 by the afternoon.

Was todays selling a one off, or more to come? In today’s newsletter I’ll talk this, I’ll go into detail why we finally sold today and how it relates to my third setup type: The Breakdown Short. Finally, I’ll discuss the actionable trade plan for tomorrow.