The Rally Is Underway In SPX, But Now The Hard Part. Can It Sustain? Jan 16 Plan
My newsletter yesterday was entitled: “Is Buy The Dip Temporarily Back In SPX” and for today, the answer was certainly yes. As readers know an enormous aspect of my trading is capturing short squeezes: Understanding where, when, and why they occur. Short squeezes are an ever-present feature of the type of high volatility, broad bearish control price action we have had since December 18th.
After selling off 255 points from last weeks high to this weeks low, I was looking for a squeeze to start this week. The setup was clear: On Monday, ES tested support of a major 2 month long “megaphone” pattern down at 5830ish. We flushed it, recovered it, and longs were triggered to print a bullish daily hammer candle. Recall that all short squeezes are caused by the flush and recovery (failed breakdown) of a major previous support shelf. Its why I wrote Monday at 4pm: “This time though we do have a bullish daily hammer candle at support of a 2 month megaphone. For tomorrow the bull case is bulls can keep it going…the next leg up would target 5893, 5918, then 5928-31.” Yesterday, we got to 5918.
Today, it would be up to CPI to take over and drive any further upside. I wrote yesterday at 4pm: “My general lean is that a relief bounce leg began on Monday by testing megaphone support, and is underway. As long as 5845-50 lowest holds on any CPI spikes down, we are simply coiling for more upside. This would target 5917, 5934-36, 5965, then 5996/6004-08 if bulls really want to move” This played out fantastically well, and by 230pm we had arrived to 5996.
We’ve had a good three days, but now comes the hard part. Can this rally sustain? In today’s newsletter I’ll talk this, I’ll do a deep dive into my secondary setup type The Back-Test. I don’t talk about this one as much because its the simplest, but that does not mean its not powerful. It was a Back-Test Long at 5845-50 (as readers know), that got me long into CPI today, writing at 4pm yesterday: “I am still holding my 10% long runner from the 5848-50 long setup around noon today, discussed above, and will let this work. I have added a little size back to it to bring it to 25% around 4pm.” Finally, I’ll discuss the actionable trade plan for tomorrow.