SPX Has Built A Huge Bull Flag. Can It Follow Through? Dec 17 Plan
We are heading into the final week of regular trading in 2024, with next week being abnormal, low volume holiday trading dominated by the infamous “Santa Rally” effect which covers the final 5 days of trading of this year and the first two of the new year. Heading into this week, ES has been undergoing highly organized price action, building out a massive base/flag.
Remember that ES cycles between trend and consolidation. Prior to last week, ES had been trending strongly putting in 13 days in a row of higher highs (this was due to the breakout of a textbook two week bull flag on November 24th, something readers were well positioned for). This meant that last week into this week would be consolidation time for ES, to setup its next leg. I warned about this last Friday December 6th, where I wrote: “It would not shock me if this 6060-63 level turned into a “magnet level” which we trap below over over for several days and build a new base”. ES certainly agreed here and we spent the entirety of last week testing that level, trapping below, recovering. Even last Wednesday when we had rallied to 6100 I had warned readers not to get too excited, stating Wednesday at 4pm: “This range could easily fill out and morph for many more days (including several more tests of the 6060-55 magnet)”.
On Friday, we closed below 6060, but ultimately this just setup today’s incredible long. I concluded my newsletter on Friday with the following: “We are rangebound still building out a huge structure between 6035-40 now and 6098 with a 6060 magnet in between. My general lean is always to defer to the trend. 6060 reclaim would trigger it back to 6075, then 6098.” This played out incredibly well and we reclaimed 6060 last night, and got to ~6090 today.
As discussed Friday, this is a bull flag. Is a holiday rally incoming? In today’s newsletter I’ll talk this, I’ll do a deep dive into an important variant of my core setup (the Failed Breakdown), known as the Failed Breakdown Re-Test, and this concept was critical last week, and we see it regularly. Its an important tool for the arsenal. Finally, I’ll discuss the actionable trade plan for tomorrow.