SPX Finally Snaps Its 9 Green Day Streak. More Red Ahead? May 6 Plan
Today, ES finally snapped its green streak. We wrapped up last week with an incredible 9 green days in a row - something not seen in ES since November of 2004. These 9 green days have been the climactic portion of what I have called - since April 6th - the buy dips regime. Understanding the broad regime and when it changes is a foundational skill. As I’ve explained at length though, it is one thing to say “buy dips” and another to know where, when, and how. Fortunately, you don’t need to know if it will be a 50 point dip, 100 point dip, or 500 point dip. Why? Institutions tell us, by putting in my core setup: The Failed Breakdown. They flush a low, trap shorts, recover it, and squeeze and every single day for the last 9 days, we had one.
Case in point: Last Wednesday, we had a “scary” selloff where we sold 125 points down to 5457. I wrote the day before that, “Failed Breakdowns of 5493 would be of interest” to long. What did we do Wednesday morning? We lost 5493 [this was last Monday’s low], sold to 5457, trapped shorts, and recovered to trigger long. That long paid out massively for 180+ points into Friday’s high. My target for this rally was 5672. I re-affirmed it in that same newsletter, stating: “Next leg up targets 5600, 5620-23, 5650, then 5672 which remains the macro target (back-test of the red megaphone structure in the below chart that we trapped above and lost on April 2nd).” By Thursday morning, we got to 5672.
Late day Thursday however, institutions weren’t done, and had more capital to deploy. Therefore, we flushed down to 5600 by 4pm Thursday, losing the 5628 Thursday daily low in the process. I wrote in my Thursday 2:30PM newsletter that: “One setup is if we put in a Failed Breakdown of today’s 10:20AM low at 5628.” We recovered it Thursday evening - putting in a Failed Breakdown - and were off for another ~100 point leg up Friday to 5720+ target.
The question for today, was would the dip be bought again with another Failed Breakdown? The answer was yes, at least to start. I wrote on Friday that: “5672 and 5665 are key supports. It was the clearance of this shelf that took us higher today.. If we are selling into 5665 in a controlled manner I’d consider a bid there, but if its an aggressive, news driven sell I’d prefer to see it hold then recover 5672.” Overnight, we sold to 5665, built out a base there, flushed it to 5655, recovered it and 5672 at 10am, and longs triggered to 5706 before selling into the close.
ES has snapped its 9 green day streak, forming an inside day and as I warned on Friday: “We are 9 green days in a row and its not uncommon to see what I call “hangover Monday”. Will this dip get bought again? In today’s newsletter I’ll talk this, I’ll do a deep dive into the Failed Breakdown setup we had Thursday evening on the recovery of 5628 that gave us Friday’s monster squeeze, and I’ll also discuss my Trailing Stop Methodology in detail. Finally, I’ll discuss the actionable trade plan for tomorrow.