SPX Snaps A 5 Red Day Streak. Does This Bounce Have Legs? Jan 6th Plan

NOTE: This is a resend of the newsletter for Monday January 6th, originally sent out on Friday at 4pm, for those who did not receive.

Today, we got the expected short squeeze, and bulls earned it. As discussed yesterday, the last four days of 2024 and first of 2025 were significant: ES closed off 2024 with four red days in a row, the worst end to a year since 1966. It started 2025 adding a red day to that streak, bringing it to 5, a rare occurence in itself only occuring 2x in the entire 2024 year.

Of course though, with 5 red days in a row, ES was due for a squeeze and the setup was there. I wrote on Tuesday at 4pm: “Possible zones for high risk knife catches though would be 5870-75”. We set the low of day yesterday exactly here. Then for today, my lean was that ES could recover 5918-22 (which had been a major bull/bear line all week), trigger longs, and put in a green day. I wrote at the conclusion of my newsletter yesterday: “If I had to throw [my lean] out there, its that after 5 big red days, ES can try to recover the 5918-22 zone and put in a rally to 5951, 5973, 5988+”. This played out to perfection. We got to work on this right after the close last night, and rallied to 5988+ today. This was a clean, fully telegraphed in advance long.

After snapping a 5 day losing streak and putting in a green day, the question is does this bounce have more green days left in it? In today’s newsletter I’ll talk this, I’ll do a deep dive into some of the action we had at 5918-22 yesterday/today as its been a goldmine, in particular for my core setup: The Failed Breakdown. Finally, I’ll discuss the actionable trade plan for Monday.