SPX Is At A Huge Inflection Point. Will The Santa Rally Run Out of Steam? Dec 27 Plan
This week produced the best long of the year for me and for many readers and it was attributable to one of my favorite “market mantras” (and the thing that defines my entire edge) is the idea that markets trap by design and profitability revolves around the capability to anticipate those traps, and exploit them rather than be victimized by them. Before a move, markets absolutely love to trap traders offside one way, then reverse hard the other. The extreme strength we saw the last few days was directly attributable to this tendency.
Last Friday morning, we saw the mother of all traps. Things were looking ugly at the time: ES had made a huge new low to 5866-58 support. Many were thinking we were set for more trending down. Traders who understand how traps work, weren’t though, and were instead preparing to enter longs. I wrote last Thursday at 4pm when ES was 5930s: “If 5927 fails, we should make a new low. Readers will know what setup I’d be tracking here: The Failed Breakdown of Wednesdays 5907 low.”
What did we do last Friday morning? Lost 5907, sold down to 5866, recovered Wednesdays 5907 major low, and put in the exact setup mentioned above: A Failed Breakdown to trigger a monster short squeeze. This setup got us long on Friday for the holiday week. I provided one clear target for this rally last Friday and everyday since: 6100, to backtest the zone we broke down from after FOMC last Wednesday.
I specified this last Friday at 4pm when we were 6000: “My general lean is that ES can make its way up to the back-test of 6099” and “I will just let this long runner work over the holidays now”. This long turned into the largest of 2024 for me, +234 points from entry, and we tagged 6100 target exactly on Tuesday, then dipped overnight last night off it, then spent the day here today.
We are now stuck below a huge inflection point at 6100. What is next? In today’s newsletter I’ll talk this, I’ll do a deep dive into two quality examples of my core setup (the Failed Breakdown) we had in the last week (Friday and Monday). Specifically, I want to talk about the hardest and most frequently asked component of this setup: The Entry Trigger. When exactly to enter these, and this is something that takes time to develop. Finally, I’ll discuss the actionable trade plan for tomorrow.