SPX Manages A Small Green Day, But Will It Get Sold Like All The Others? Jan 9th/10th Plan
Everyday since December 18th, I’ve spoken about how the market is now in a new high volatility/bearish control regime and every newsletter since then has been devoted to how to trade this new regime, because its a different skillset from most of 2024. As a reminder of what happened Dec 18th, ES broke down a massive, 1.5 week long flag to trigger the biggest red day of 2024. This put ES into a “sell bounces” mode that we have been in since. Since December 18th, we have spent nearly all our time trading inside the daily candle of that single December 18th session.
As readers are well aware this new regime means a few things. Firstly, it means volatility is high. 50 point moves are now as routine a 5 or 10 point moves before. Secondly, it means ES alternates between two types of price action: Deep, “elevator down” sells, and vicious short squeezes (which typically just end up getting sold). After 5 big red days in a row heading into last Wednesday, I was looking for one of these infamous squeezes to head into this week with ~6070 likely target. I re-affirmed Friday at 4pm: “My general lean is that ES can try to follow up this rally more. This next leg would target 5997, then 6038, then 6070 if bulls really want to run.” By Monday, we squeezed 190 points to 6070, then began another deep “elevator down” sell, which took us to 5928 by this morning.
Elevator down, short squeeze, repeat. With this deep flush heading into today, this would mean squeezes were likely and I wrote yesterday at 4pm: “5935 is first support down for tomorrow. We already tagged this late day today, so its no longer fresh. This means I’m not buying it again. I’d need to see a failed breakdown of todays 5935 low, ideally down to 5928, then recovery to get long”. We got this right at 8am, hitting ~5928 low of day, recovering yesterdays 5935 low of day, and triggering up to 5965. This Failed Breakdown setup played out multiple times today to put in a small green day.
Bulls have struggled to string together green days. Will today’s get sold as well? In today’s newsletter I’ll talk this, I’ll do a deep dive into the setup that caused the monster selloff we saw yesterday: It was my core short setup, The Breakdown Short. Finally, I’ll discuss the plan for this evening/Friday (markets close tomorrow).