SPX Tries A Bounce But Can It Stick? CPI Tomorrow Decides. March 12 Plan

Yesterday was a unique day in ES for two big reasons. Firstly, it was the first open-to-close red trend day since February 21st (which, coincidentally, was the day the current correction began). As readers know, days like this are rare in ES, even in bear markets (ES tends to flush hard for a few hours and cover lots of space, then squeeze, to close net red). Secondly, it was the largest single red day since the August 5th 2024, capitulatory low, from which we bottomed after a 600 point sell.

The magnitude of yesterdays collapse was not random. As I’ve discussed at length, ES has spent the last 4 months now (since November) building a large “megaphone” pattern with support at 5720. The last of this structure was January 13th, from which we set a 1+ month low. We held this support on Thursday to set the daily low. ES spent all day Friday testing, and trapping below this structure. I wrote on Friday at 4pm that for Monday: “Bear case Monday: Begins under 5720.” On Monday morning at 8am, we lost this structure, and we got a selloff of corresponding magnitude: Down 160+ points.

Heading into today, ES was only three green days of the last 14. Readers know though that after an elevator down sell like yesterday, a short squeeze is common, and it typically occurs on my core setup: The failed Breakdown. Last evening at 930PM, we got this, where we flushed the daily low, recovered, and squeezed. I wrote yestreday at 4pm: “If we head down to new lows tomorrow, the Failed Breakdown (my Failed Breakdown) of today’s low is obviously of interest. A flush to 5568 or even down to 5548-50 and recover would be of interest.” We saw this last night and ran to 5640s by this morning.

While ES looked good to start the day, it was again sideswiped by Tariff remarks, causing a flush to new lows in the 5530s, then putting in the exact same Failed Breakdown discussed above at 2pm for a second time. I call this a “double dip Failed Breakdown”. We squeezed to 5643-46 afterwards again, before dipping into the close.

While we saw a small bounce today, bulls have work to do and CPI tomorrow decides the rest. Can this bounce stick? In today’s newsletter I’ll talk this, I’ll discuss the cause of yesterdays historic melt down (it was caused by my third setup type: The Breakdown Short). Finally, I’ll discuss the actionable trade plan for tomorrow.