SPX Tries To Breakout Its Two Week Range, and Fails. What Now? July 16 Plan
As I discusssed in my last newsletter (and for weeks) the last few weeks saw in ES a key concept I call the market cycle demonstrated nicely on the higher time frames. ES generally does two things: About 10% of the time, it is in what I call “Mode 1” which means trend. Mode 1 does not come out of thin air though, and it is produced via price spending the other 90% of its time in what I call “Mode 2” which means consolidation, or pattern formation. Mode 2, leads to Mode 1, leads to Mode 2, and this continues indefinitely in an uptrend until the trend snaps.
For the past month, we saw this, and during this month the “Mode 2” state in ES formed one particular pattern over and over: Triangles. For example, for the two weeks prior to June 23rd, ES had built out a massive triangle and we spent those two weeks rangebound. I provided this setup way back on Friday June 20th at 4pm when we were 6020, by stating: “My general lean is always to defer to the trend, until it ends. 5978-82 to 6081= a range (descending triangle). My lean is we work back up to 6050, then 6081. Above there, we can try breakout.” As a general rule in technical analysis, two week structures lead to two week rallies and this is precisely what we saw from June 23rd to July 3rd: 10 green days in a row. The traditional “measured move” target for a rally of this size was roughly 6325 as readers knew, and by July 3rd, we hit 6333, completing the triangle. This high has stuck since then for the most part
After that stretch of 10 green days, ES then spent since July 3rd consolidating in Mode 2 and working on yet another chart pattern. This time? Another triangle, except this time an ascending triangle rather than a descending triangle. I provided this last Friday when I wrote: “We remain in very complex rangebound chop all week. The range is a sloppy triangle now with support down at 6263, with a clear resistance shelf just above there at 6311. We could fill this out in a million different ways. As long as its structurally in tact though, my lean is always to defer to the trend. Next leg up sees 6319 1st, 6333 2nd, then 6338, 6349, 6361” This couldn’t of acted more precise and right off the 6pm open Sunday, ES gapped down to 6263 *to the tick*. We then filled the triangle out to the upside yesterday to 6311 target.
That took us into CPI today, and CPI would determine the future of this pattern. Heading into today, the triangle was mostly 6271-68 to 6333. I wrote at the close yesterday: “CPI day, expect anything. 6271-68 to 6333 = an ascending triangle, with 6285-82 being a magnet inside. This could fill out after CPI. As long as bulls defend support though (or quick Failed Breakdown below). Leg up targets 6333, 6349, then 6366. If the triangle fails, we begin a leg down.” This tracked nicely, and by 10pm last night, we hit triangle resistance at 6333, and spent the overnight there into this morning. ES tried to pop above the structure after CPI, but as written yesterday, the first CPI move is typically a trap, and we worked back down the range into the pattern after.
ES is still rangebound. What now? In today’s newsletter I’ll talk this, I’ll do a deep dive into a quality Failed Breakdowns we had on Thursday evening below 6288 (that produced a 25 point rally), Friday Morning below 6283 (that produced a 35 point rally), then Sunday Evening below 6263 which produced a 56 point rally yesterday. Patterns like triangles are all well and good, but to actually trade them, we need to use Failed Breakdowns (My core setup). Finally, I’ll discuss the actionable trade plan for tomorrow.