The Relief Bounce Was Sold In SPX, But Are New Lows Coming? April 9 Plan
After a 700 point sell in 2.5 days last week (something not seen in the Covid collapse or the 2008 bear market) ES kicked off this week with another massive gap down and flush, which formally put ES 20% off its all time high and into a bear market.
As I've discussed at length though, downtrends in ES follow a similar cycle, even in the recent extreme conditions. I wrote on Friday at 4pm: “When ES is trending down it tends to do two things. Each of these two things correspond to one of my setup types, they tend to follow each other. I call them siblings. Price goes “elevator down”, then it “short squeezes”. In other words, every sharp flush in ES is followed by an equally or more vicious squeeze and these squeezes have a singular cause: My core setup, the Failed Breakdown.
It is for this reason that, paradoxically, the best longs are not in bull markets, but in bear markets and historically the 10 best days for SPX occurred within 15 days of the 10 worst days.
Given this, it should be no shock how this week started and after a 240 point collapse Sunday, ES put in a face ripping short squeeze. I tweeted yesterday morning at 945AM that the reclaim of 4910 would start the squeeze, and we went 370+ points. Heading into today, I was looking for a little more writing at 4pm yesterday: “My general lean is a relief pop is underway. Bulls want to base out 5130 to 5075 and this sets up 5155, 5187, 5249-52, then ultimately 5377 which I view as the macro target from here to backtest where we sold off from last Friday early morning.” By this morning, we got 5249-52, based out, rallied to 5300, then collapsed 300+ points into the close.
My newsletter was entitled “Dead Cat Bounce”, or Interim Low? The answer was dead cat bounce (for now). Are new lows coming? In today's newsletter I'll talk this, I'll do a deep dive into three quality Failed Breakdowns we had Friday into yesterday, including yesterday mornings which produced the most rapid short squeeze in the history of the s&p 500 to my recollection. Finally, I'll discuss the actionable trade plan for tomorrow.