The Dip Was (as usual) Bought In SPX. ATHs Next? Not So Fast. Dec 12 Plan
As discussed last week, heading into this week ES had put in an incredible 13 days in a row of higher highs - that is to say - cleared its prior high for 13 days in a row. This is a hallmark sign of a low volatility, quasi-parabolic rally. Its cause was not random, and it was caused by the fact that on November 24th, ES broke out a perfect, two week bull flag, something readers were well position. A two week, parabolic rally is the expected technical outcome of a two week bull flag breaking out, not an abberation. Two week breakouts=2 week minimum rally.
Nothing continues at this pace forever though, and markets need to take breathers. Starting off this week - after hitting 6111 on Friday - ES finally cracked its streak of higher daily highs to put in the largest pullback since November 15th/18th. The magnet for this pullback was the low 6060s, and as I wrote on Friday at 4pm, this region was a critical zone which back-tests the area we broke out from on December 6th (which triggered the most recent, leg up to 6111). I wrote then: “It would not shock me if this 6063 level turned into a “magnet level” which we trap below over over for several days and build a new base”, and we spent all day yesterday essentially testing this level, putting in over 8 tests between Monday and Tuesday, before flushing it late day yesterday.
This would mean today, the main task for bulls would be to recover it and they sure did. I wrote yesterday at 4pm: “We are in a mild dip now and for tomorrow the bull case is quite simple: 6060 has to recover, which would squeeze us up to 6074, 6092. On a CPI day, this can happen instantly”. Right after CPI, we got this exactly, popping up to 6074, then onto 6092 by 11am.
My newsletter yesterday was entitled, “CPI Tomorrow, Will This Dip Get Bought?” It was, but can it continue? In today’s newsletter I’ll talk this, I’ll do a deep dive into all the action we saw at the 6060 level this week as this level - in the past three days - saw all three of my setup types, cycling through in the order that they frequently do. This is essential to know as we see this type of action several times a month around a magnet level. Finally, I’ll discuss the actionable trade plan for tomorrow.