Short Squeeze For SPX; Dead Cat Bounce, or Bottom? Oct 24th Plan
Last week, ES concluded the week with an incredibly rare 4 red days in a row. This strong selloff had the effect of making the RSI(5) very oversold as I wrote in my last newsletter - to be specific, the most oversold it has been all year. I wrote in my last newsletter: “RSI is something to take note of though, because it is represents stored energy for a major short squeeze. There will be one - and it will be violent as all short squeezes in down-trends are, but ES must reclaim a resistance level to trigger it.”
We got the short squeeze today, with ES flushing last weeks lows, trapping a final batch of shorts, and pushing higher for most the day. I concluded my last newsletter with the following: “My general lean if I had to provide a guess is ES can try a relief pop off 4245, before resumption down to a new low to 4222-4215 area”. We got this exactly and saw a brief bounce off 4245 at open last night, flush down to 4215, then reclaimed last weeks lows to put in the anticipated short squeeze.
Despite the squeeze though, ES failed to put in a green day today, closing the day roughly at the same spot we closes Friday, but the daily candle was a bullish hammer candle. Can bulls follow it up tomorrow? In today’s newsletter I’ll talk this, go over why we had a short squeeze today (hint: we hit a multi-year support) and then I’ll go into the actionable trade plan for tomorrow.