The Calm Before The Storm For SPX? September 17 Plan
As I often say this newsletter, markets are a massive machine built to trap and it is not possible to trade profitably until one both deeply understands this and understands what it means it practical terms. Institutions hunt liquidity and to succeed we need to trade alongside them rather than end up being the liquidity. Last week saw the most massive of all traps: After a 280 point selloff to start September, and with every trader talking about “bearish September seasonality”, what did ES do starting Friday September 6th? It bottomed, and squeezed 250 points last week which included the 3rd largest green day last Wednesday since the bull market began October 2022.
I warned about this way back on Friday September 6th after the close (when we were 5400), writing: “Obviously a short squeeze is around the corner”, and “Remember that when ES short squeezes - it is violent. We could recover this entire selloff in a day or two easily if ES really wants, just like we did at August lows”. This rally took us back to the 5630 level was a massive magnet for the last two weeks of August, and I was looking for a run here in my last Thursday newsletter at 4pm, writing: “My general lean is always to defer to the trend. As long as 5585 holds (or recovers quickly on any flushes) we simply continue up, with the next leg targeting 5619, 5630, then 5660-64 as a stretch target”.
We spent all day Friday and the start of today at that 5630 magnet zone before dipping this morning. I wrote in my Friday 4pm newsletter: “For Monday, this would generally see ES building a new base which would be below todays highs (5642) and above 5619-22 (with any dips below quickly grabbed). This would form another choppy flag around that 5630 mid-pivot, then just push higher”. We saw this choppy action today, dipping below 5619 over and over, and spending time around the 5630 mid-pivot.
While today was a slow day, it won’t remain so, with FOMC coming up Wednesday. Can bulls keep the rally going? In today’s newsletter I’ll talk this, I’ll talk about short squeezes and how they relate to my core setup (the failed breakdown) - this is what caused the recent monster leg up. Finally, I’ll discuss the actionable trade plan for tomorrow.