SPX Is Coiled In A Huge, 2 Week Triangle. Breakout Soon? June 17 Plan
We are now over two weeks into July, and for the first two weeks of the month, ES has - quite literally - gone nowhere. Why? As I’ve discussed at length, ES/SPX in the context of an uptrend (which it has been in 75% of the time for the last 100 years) behaves in a predicatble, cyclical manner. About 10% of the time, it is in what I call “Mode 1” which means trend. Mode 1 does not come out of thin air though, and it is produced via price spending the other 90% of its time in what I call “Mode 2” which means consolidation, or pattern formation. Mode 2, leads to Mode 1, leads to Mode 2, and this continues indefinitely in an uptrend until the trend snaps.
For the two weeks prior to June 23rd, ES was in “Mode 2”, and the pattern was a bullish descending triangle. 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). My lean is we work back up to 6050, then 6081. Above there, we can try breakout.” As a general rule in technical analysis, two week structures lead to two week rallies and this is precisely what we saw from June 23rd to July 3rd: 10 green days in a row. My target for this was 6325, and we hit it by July 2nd.
After that stretch of 10 green days, ES then spent since July 3rd consolidating in Mode 2 and working on yet another chart pattern. This time? Another triangle, except an ascending triangle rather than a descending triangle. I confirmed this prior to CPI yesterday and yesterday we saw this pattern fill out with precision. I wrote at the close Tuesday: “6271-68 to 6333 = an ascending triangle. This could fill out after CPI.” By 10pm Tuesday evening, we rallied to 6333 exact. After CPI ES popped above this structure, the breakout failed, and we dipped into the close. Where did we close yesterday? 6271 almost exact by 5pm. This took us into today, and the task for bulls was defend this structure or put in a quick Failed Breakdown).
I wrote at 4pm yesterday: “Its been the same thing since early July and ES remains inside a triangle with 6271-68 support, and 6330 resistance. My general lean is always to defer to the trend. As long as the triangle support holds (or failed breakdown and quick recover), ES can work back up the structure with 6301 being 1st target.” We saw exactly this today, last evening we tested 6271-68 triangle support. We spent all evening there. At 3am, we put in a quick Failed Breakdown, trapped bears, and rallied to 6301 by 930AM. From there, we flushed back down the triangle and put in another Failed Breakdown, and headed back up to 6301 to close.
After all this, we are still inside the triangle. Is it almost ready? In today’s newsletter I’ll talk this, I’ll rewind a little to Thursday and discuss a very important series of follow up setups of my core setup: The Failed Breakdown. As readers know, Failed Breakdowns are rarely one and done, and they have two secondary entry opportunities that often follow the initials. These produced the late last week/early this week strength we saw. As always, there is no shortage of setups for Failed Breakdown traders. Uptrend, downtrend, sideways market, we get 1-3 per day, but you have to put in the work to learn the variants and how they cycle. Finally, I’ll discuss the actionable trade plan for tomorrow.