The Melt Up Continues In SPX. Where Is It Headed? Feb 5th Plan

The past two weeks have been a victory for what I call “classic technical analysis” further demonstrating the ability of simple chart patterns to cut through the enormous amount of noise out there. While the media space is inundated as always with complex macro analysis and a myriad of diverging opinions, price makes things very clear. What do I mean? As discussed daily, on January 19th, ES broke out of a massive, perfect inverse head and shoulders pattern at 4835. This formally started a leg up and put the market in “buy dips mode” and since then, every dip has been reliably bought.

As readers know, I attempted buying this dip at the close on Wednesday, writing 4pm: “I have added some small long exposure late day on the test of ~4865 support, and I’ll hold this above 4860 or so”. This long played out much better than could have anticipated, resulting in a rare 100+ point gain. I wrote in yesterdays 330pm newsletter: “I am still holding my long runner from yesterday at the close 4860s, but I’ve got a tight leash on this now and won’t hold much below 4904” and this continued to pay out massively into today as we ran all the way to 4980s resistance. I added yesterday: “This would eventually target the break upward to 4937, 4953, then onward to 4985-90” and we saw 4990 High of Day.

This entire rally is simply to do the breakout of a classic, month long head and shoulders pattern and this move is not an anomaly, or unusual, but the expected outcome of a 1 month long pattern breakout. What now though? In today’s newsletter I’ll talk this, go into detail on the setup that caused this weeks squeeze as well as the trailing stop methodology that kept me in the trade. I’ll conclude by discussing the actionable trade plan for Monday.