The Dip Was Bought in SPX, But Can It Continue? Sept 5 Plan

September certainly started off with a character change in ES. After a 600+ point July sell, we set a major capitulatory bottom at the start of August, and put in the largest two week rally of this entire bull market cycle from October 2022 from August 5th to August 22nd. ES then spent the final half of August ping ponging endlessly between 5585 largely and 5562, with a few traps above and below. Slow, summer trading. 5630 was a key pivot in this zone.

Then yesterday, summer trading abruptly ended and ES finally left this range and we got the selloff that one would expect upon departing a two week range: In this case, about 150 points down in a single session and the largest sell since August 7th. I provided this short setup to readers on Friday at 4pm, writing: “Bear case Monday: There is no bear case until this flag breaks down at 5585-90. On a short-term basis, 5625-30 failure is likely a short though”. This took us down to nearly 5500 overnight last night. What happened from there?

My newsletter yesterday was entitled: “Will Todays Dip Get Bought Like The Others?” and the answer was yes to start the day. I wrote yesterday: “My general lean is that bulls can try a pop to 5575, perhaps 5588-90. That will need to recover to set any sustained low”. We got started on this right away this morning, getting to ~5568 before dipping.

The dip was bought in SPX, but its been weak. Can bulls run with it? In today’s newsletter I’ll talk this, I’ll do a deep dive into the short setup off 5630 yesterday as this was a high quality example of my third setup type: The Breakdown Short. While this setup is rare in uptrends, it becomes your best friend in downtrends. Finally, I’ll discuss the actionable trade plan for tomorrow.