"Tariff Day" Tomorrow. Can SPX Bulls Keep The Rally Going? April 2nd Plan
Friday and Monday were an extremely common sequence in ES. As readers know I frequently talk about how in the context of a downtrend ES does two things: It goes “elevator down” and then it “short squeezes” and each of those correlates to one of my three setup types. We saw the former on Friday and heading into Friday ES found itself at a massive inflection point: The ~5720 level which was support of a multi month “megaphone” pattern and we spent Mon-Wed last week bouncing off it. On Friday morning, we lost it, Breakdown Shorts were triggered, and we went “elevator down” for nearly 200 points.
After “Elevator Down” sells however comes violent short squeezes and short squeezes are caused by my core setup: The Failed Breakdown. I wrote on Friday at 4pm: “Below 5585 we retest the major lows at 5565. A Failed Breakdown here would be very much of interest and this remains a strong zone.” At 10am Monday we flushed 5565 (March 13th low), put in a big wick down to 5536, and recovered to trigger a monster 150+ point squeeze.
For those who missed that squeeze though, today delivered another Failed Breakdown. I wrote yesterday at 4pm: “Heading into tomorrow 5620-25 is 1st support down. Since bears control I am in no rush to insta-buy this or any support (my preference is always high quality Failed Breakdowns). I’ll be watching the reaction here though and if we can flush it and recover with momentum (ideally down to 5600) I’d long.” Today at 10am, we got exactly this and we flushed down to 5600 to the tick, recovered 5620, and squeezed 70 points
Back on Friday I stated: “My general lean is that ES can do some backtesting on Monday. To do this, 5620-25 has to recover. This would target 5650, 5686, then 5711/5728-30.” We got to 5686+today.
While its been a great rally, there is a problem though is that tomorrow is so-called “Tariff Day” and this is a significant external catalyst. How to approach it? In today's newsletter I'll talk this, I'll discuss yesterday's Failed Breakdown in detail as its an excellent example of my core setup. Finally, I'll talk the actionable trade plan for Wednesday.