The Dip Was Bought In SPX, But Can It Sustain Now? April 23 Plan
My newsletter yesterday was entitled, “New Lows Coming For SPX? Not So Fast”. We can see today why I said not so fast. While I am a day trader, it is nonetheless important to understand the big picture context and every day for months, I’ve made it clear: ES has been in a downtrend since mid-February and arguably since December 18th. I warned most recently about this last Thursday, stating: “Big picture, we remain in a downtrend and this won’t change until ES recovers the red megaphone in the above chart up at 5700ish.”
Within this context though, since April 6th (when ES set it's most recent major low at 4835), ES has been in its first major bear market rally. In this time period ES has had many major selloffs: We had 430 point sell on April 9th, 375 point sell on April 10th, 130 point sell on April 11th, 233 point sell last Wednesday, and 56 point sell last Thursday and yesterday a 177 point sell. All these sells however were bought to prevent new lows and I assumed yesterdays would be as well. It was.
Yesterdays was quite deep and caused by the loss of a multi week support shelf at 5250. I provided the setup to short this on Thursday at 4pm when I wrote: “Bear case Monday: Begins under 5248-51….For the Breakdown Short here, I’d need to see a final bounce and/or Failed Breakdown at 5248-52. After this, one can short below wherever the low of that bounce is.” We lost this zone, and sold to 5129 low of day yesterday.
This would be a big test to see if the dip would get bought. My lean was that it would be, with the target being for bulls to backtest the 5250 zone that broke down yesterday, then clear. I was long into the close yesterday in preparation for this, as provided explicitly in yesterdays newsletter. I also wrote yesterday: “My general lean is ES can try to backtest 5231, then 5248-52. Bulls need to clear that to get excited about anything…Once 5248-52 clears, ES can head significantly higher to 5315 then 5377+.” By 3am last night, we tagged 5248-52.
Can It stick? In today's newsletter I'll talk this, I'll do a deep dive into the setup that triggered yesterday's short below 5250 and today's long (it was my Breakdown Short and Failed Breakdown setup types respectively). Finally, I'll discuss the actionable trade plan for tomorrow.