SPX Is Coiled Tight To Make A Move. What Way? Oct 4 Plan
October started off in the same way September did, and with something that very rarely happens in ES (at least, in strong bull markets). A short setup. Tuesday on the 1st day of October, ES gave the opportunity for my 1st short in 3 weeks, when we lost the 5777 level and I wrote back in my Monday newsletter: “Bear case tomorrow: Begins again on the fail of 5777….As always, I don’t chase. This 5777 zone is so well tested now it doesn’t really need anything to fail now and could easily just flush through and plunge”. 5777 failed Tuesday morning, shorts triggered, producing an elevator down move to 5730s on Wednesday.
As I discuss in this newsletter though, ES has a very particular tendency. Namely, in ES all “elevator down” selloffs have a sibling, and these siblings are never very far apart. That sibling is the short squeeze, and the short squeeze makes it so that while bears get paid quickly and rapidly, they never get paid for long as sells are always interspersed with and followed by short squeezes. In bull markets, most those short squeezes evolve into sustained lows. These squeezes always occur when ES flushes a big support, traps shorts, recovers, and we saw this Wednesday and today below 5739 over and over.
I wrote in my Tuesday 4pm newsletter: “5739 was a key support today, and it may have 1 bid left in it, but risky. Below there, possible options include a failed breakdown of today’s low. This would probably test down to 5729 or maybe a little lower then recover then I’d be looking long above 5734”. We saw this setup yesterday where we flushed to ~5729, reclaimed 5734 and squeezed to 5770s. We saw it again overnight last night into today where we did the same thing to 5770s, and we did it again around 1pm today.
Ultimately, we are coiled tightly for a move, possibly tomorrow and have spent a full two days just probing under 5740 over and over. Is this accumulation, or distribution? In today’s newsletter I’ll talk this, I’ll talk a little about these failed breakdowns we saw that triggered yesterdays and today’s longs, but I will also devote some time to going deeper into my other two setup types (Backtests and Breakdowns) that we saw earlier this week. Finally, I’ll discuss the actionable trade plan for tomorrow.