SPX Is Coiled Tightly. Trend Leg Incoming? Feb 20th Plan.
As readers know, I am a big believer that traders should specialize - that is to say, focus all their attention on learning and mastering 1 setup. For me, that setup is the Failed Breakdown, we’ve seen nearly one per day for the past 7 trading days. It was the engine that propelled this entire leg up. As readers recall, last Sunday February 9th, I originally got long at 6020, and this long lasted into today, making this one of the longest lasting runners of my nearly 20 year career.
The setup? A macro Failed Breakdown. Remember institutions always enter positions by setting a trap: They find a set of lows below which liquidity is hiding. They intentionally flush those lows or wait for a headline to do it, then they enter. This creates a Failed Breakdown, and my job is to follow. I wrote back on Friday February 7th at 4pm: “For Monday, bulls will want to hold 6016-20. This would allow ES to work back up to range resistance, starting with 6066-70 which is the 1st gateway, then 6093, then onto 6129.” What happened last week? We gapped down to 6016-20 exactly off last Sundays open, put in a large Failed Breakdown of the prior Wednesdays 6020 and longs were triggered for the week. I said we’d be heading to 6129 and where did we close last week? Essentially, right at 6129, for a 100 point long from last Sundays entry.
By making this run, ES had also broken out of what was a massive, three week bull flag that we had built largely between 5950 and 6120. This meant starting this week, bulls would need to defend 6120. I wrote on Friday at 4pm: “6116-20 is first down Monday/Tuesday. I am not interested in buying this again now directly, but if we can put in a Failed Breakdown of todays 6120 low, I’d be looking to take this.” Yesterday, we saw exactly this, dipping to 6120, putting another Failed Breakdown, and slingshotting us higher to 6154 high yesterday
Heading into today, ES was rangebound as it built energy to setup a new leg. I wrote yesterday: “The ultra bull case ES will simply flag out below 6154 and above 6129 or so. This would then trigger a breakout to 6167, 6176, then 6184-88.” Today, we played this range exactly, dipping down to 6129 morning low precisely, then rallying to ~6167 by the close.
Its been days of coiling in ES. Are we ready to trend? In today’s newsletter I’ll talk this, I’ll do a deep dive into how my trade management system works, in particular related to how I use runners. Runners are a key part of my system and allowed me to stay long from Sunday February 9th at 6020 into today. Finally, I’ll talk the actionable trade plan for tomorrow.