SPX Snaps Its 6 Green Week Streak. More Red Ahead? Oct 28 Plan
NOTE: This is a resend of the newsletter for Monday October 28th, originally sent out on Friday at 4pm, for those who did not receive.
Readers are probably sick of me reminding about it now (though their porfolios likely aren’t) but ES has been in what I called buy dips mode since August 8th. While the dips have varied in length - some large, some small - the common trait is that they’ve been bought promptly. Most incredibly, from September 8th to this Monday (1.5 months), ES was unable to string together more than one red days in a row with every single red day getting bought.
This week snapped that cycle finally, and on Wednesday, ES got its largest selloff since September 6th where we sold down to 5800. As always though, this dip was bought. Remember that in ES, there is no such thing as an “elevator down” move without a short squeeze - one always follows the other. Its just a question of when. Readers were well prepared for this, and I wrote Wednesday at 4pm: “My general lean is we can backtest the breakdown zones now. This means 5855-57, then 5864. This is the dip zone”. We got this, and yesterday we rallied to 5864. From there we got another dip to 5820.
What happened with this dip? Again, it should be no surprise, this dip was bought, and the 5820s long was provided to readers on Wednesday. Today, I was looking for a rally to 5881, 5892 off this. I wrote at 4pm yesterday: “I am still holding my 10% long runner from this afternoons ~5828 long… The short-term bull case tomorrow is that ES is stuck in a new range 5825-5865, and that this range breaks to the upside… generally the bull case would probably look something like pop to 5865-68, perhaps one more dip (could be a huge dip, could be a quick one, nobody knows). From there, we break out, and this would target 5882, 5892”. By 10am today, we got to 5892+ target - completed all upside objectives for the day - and then were free to sell into the afternoon back down the range.
After all this drama however, we closed today right where we did yesterday and this also means that ES closed the red week, for its 1st red week since September 3rd. What is in store for the final week of October? In today’s newsletter I’ll talk this, I will do deep dive into the sequence of price action that lead to today’s squeeze (it is very common and incorporates all three of my setup types: Breakdown, Back-test of the breakdown zone, then recover/squeeze). Finally, I’ll discuss the trade plan for Monday.