The last two weeks saw demonstrated the capacity of simple chart patterns to cut through the plethora of noise that the market throws at us. Specifically, I am talking about how on June 23rd, ES broke out of a textbook two week long bull triangle pattern which had 5970 support and (at the time) 6081 resistance (that resistance is now down at 6020). I provided this setup way back on Friday June 20th at 4pm, when we were 6020, by stating: “My general lean is always to defer to the trend, until it ends. 5978-82 to 6081= a range (descending triangle) with 6050 a key magnet inside. My lean is we work back up to 6050, then 6081. Above there, we can try breakout to 6099, 6124, 6143+” We rallied all last week after this, into last Monday.
As I’ve stated since then everyday, as a general rule of thumb, two week pattern breakouts lead to two week continuous rallies. This quite literally precisely what we saw and with June 23rd being the breakout day, we rallied for two weeks into Friday. Last Monday June 30th (when we were 6250), I warned to expect this, stating: “My general lean is always to defer to the trend until it ends. I’ve been doing this for the last 1200+ points since the April low, and we never fight the trend or “try to be first” into a reversal. 6227-32 to 6250=a flag. This sets up 6271, 6280, then ATHs to 6315, 6320-25.” What did we see last week? Exactly this, we held 6227-32 last Tuesday, and by last Thursday, tagged 6320-25, then finally began a dip last Friday that lasted into today.
Readers know that we had been long for this entire move from June 22nd (as updated in a fully transparent matter at the close each day since) and this was due the fact that ES had never pulled back enough during this stretch to trigger my trailing stop, since my trailing stop is placed below the prior days low. For 10 days straight, ES did not lose its prior days low. With the two weeks of upside done though, and the July 4th week over, the question was if ES could start some pullback/dip this week. My lean was it could and its why I entitled my last newsletter After A Parabolic 10 Green Days, SPX Puts In A Red Day. More Dip Next Week? and I wrote Friday at 4pm: “We should not be surprised *At all* to see more complex corrective (pullback) or consolidative action as the market digests and resets after this leg up..Its been an incredible leg up, 9 green days in a row, 350+ points.” To start a sell today, bears would need to lose 6281 and I wrote on Friday: “Bear case Monday: For Monday, 6281 failure though could provoke an actionable lvl to lvl dip.” We lost it around 12:20PM today, and down we went to 6250 before a late day bounce.
After 10 green days, ES finally put in a pullback. How long will it last? In today’s newsletter I’ll talk this, I’ll do a deep dive into a powerful setup I use called the “Failed Breakdown Re-Test” which originated much of the strength we saw last week. Finally, I’ll talk the actionable trade plan for tomorrow.