SPX Broke Out Its 3 Week Range, Summer Grind Up Underway, Will It Sustain? June 10th Plan
For nearly a month prior to this week (since May 13th), ES had been stuck in a huge range, with support at 5850 and resistance at 6k. I have described this range as being a massive bullish inverse head and shoulders pattern (May 15th left shoulder, May 23rd head, May 30th right shoulder). The neckline was located at about 6k, which we tested 7x since May 19th (including 2 traps above last week), with none sticking until Friday afternoon. This had been an extremely stubborn resistance and on Friday, we broke it out.
One week and two days ago, we were down at support of this massive structure, I closed out my Friday May 30th newsletter by stating: “My general lean is always to defer to the trend. Bulls control above 5877. 5925 recovery starts us up to 5936, 5945, then 5965-70. Breakout above to 6k+.” By last Wednesday, we had hit 6k. ES then spent Wednesday and Thursday trying unsuccessfully to break 6k with a large failure last Thursday that took us down to 5929.
As I said on Friday though, while its fun to talk about big picture patterns, they are not particularly helpful with telling us when, where, and how to enter. To do that, the focus needs to be on execution and when it comes to execution, I only care about one thing. My core setup: The Failed Breakdown. Price finds a low/shelf of lows, flushes it in a big scary trap down, traps bears, it recovers, and I long. This is also how institutions accumulate. Regardless of what the pattern is, I am always just looking for this. It was ultimately this setup that produced Friday’s monster squeeze.
I wrote on Thursday at 4pm (when we were around 5945): “My general lean is as long as above 5925 (or can recover 5948-51), ES can work back to 5970-75 which was a big support all day today. If that clears, we rally to 5985, 6k+.” We saw exactly this. On Thursday evening, ES cleared 5948-51 (Failed Breakdown #1), triggering long to 5970-75 by Friday Morning. On Friday at 830AM we cleared 5970-75 (Failed Breakdown #2), triggering to 6k.
On Friday, we finally cleared 6k and stuck above for a few hours. The job for bulls this week was to finally be able to hold it. I wrote on Friday at 4pm: “My general lean is always to defer to the trend. ES is attempting to breakout a 3 week range (inverse head and shoulders pattern) from 5850 to 6k. Bulls want to hold 5975 lowest Monday (but ideally, that won’t even test and rather ES will just consolidate around 6k). The next leg up targets 6029, 6047-50, then 6072.” We saw this today, and we held 6k all morning, then rallied to ~6029 target by 3pm before dipping.
Today was an ultra low volatility summer session, but bulls held above the 3 week range at 6k. Can they continue it? In today’s newsletter I’ll talk this, I’ll do a deep dive into three massive Failed Breakdowns we had on Thursday/Friday last week (including the two discussed above) to readers can identify them better in the future. Finally, I’ll discuss the actionable trade plan for tomorrow.