[Re-Send With Chart] SPX Snaps Its 6 Green Day Win Streak. Will The Dip Get Bought? May 21 Plan

Note: The first email forgot the chart.

The past 1.5 months - but in particular - the last week, traders have received an important lesson from the market on understanding and trading alongside what I call the broad regime. I have started literally every newsletter since April 6th now, with the exact same repetitive reminder of what that regime is: Buy Dips. A huge chunk of profitability is just understanding and trading alongside the existing trend. If you get this right, everything is easier. The trend is by definition an edge, since it implies one direction is more likely than another.

As I have also stated very repetitiously though, institutions buy dips in a highly repetitive way, via my core setup: The Failed Breakdown. The typical sequence is the market will get hit by a bearish headline, price will flush hard and lose a low. Retail shorts will pile in, stops on longs will get hit, then institutions will grab that liquidity, squeeze, and off to the races. We saw exactly this to start this week. On Friday, we saw this. I wrote on Thursday at 4pm: “My general lean is to defer to the trend. 5925 to 5882-85 was a bull flag we’ve built out since Tuesday, and probed above today. As long as that flag is in tact, next leg up sees 5953, 5970-75, then 6000.” On Friday, we rallied from 5925 to 5970-75, then ES got hit with headlines regarding a Moody’s credit downgrade.

Cue the Black Monday calls, and ES flushed from 5970 to 5893 early Monday morning. This in turn, setup my core setup: The Failed Breakdown. I wrote Friday at 4pm: “Below 5945 we work back down to that 5925 level again, and this is a big one… Ideally, I’d look for a Failed Breakdown of today’s low to long here.” 5925 was Friday’s daily low and we flushed it Sunday evening down to 5893, recovered it yesterday, and longs triggered for a large squeeze to 5990 last night. The same trick over and over.

Heading into today though, ES was 6 green in a row, and the question was if they could keep it going to an elusive 7. I wrote yesterday at 4pm: “While this has been a very lucrative few days, its also been a grind. Markets are cyclical. We had off the charts volatility in early April, and now we are on the other side of the volatility cycle. It will come back around eventually as it always does, but we don’t predict when. My general lean is to defer to the trend until it ends for tomorrow, bulls want to hold 5970/63 and 5925 if we get a slightly larger dip.” We saw exactly this. Today we sold down to 5925, and the dip got bought.

Will it stick though? In today’s newsletter I’ll talk this, I’ll do a deep dive into the Failed Breakdown we saw yesterday morning of 5925 which triggered yesterdays 60+ point squeeze, and I’ll then discuss the actionable trade plan for tomorrow.