Tomorrow Decides If This Relief Rally Has Legs In SPX. Here's Why. March 28 Plan

For several months now, I have spoken at length about how all the big picture moves in ES have been driven by a singular level/structure: 5740-45. This is not an exaggeration. This was support of a large “megaphone” pattern that began forming in November. We set the November, December, and January lows at this structure (remember it is a declining trendline support so it falls daily, it was higher last week and earlier in the month).

Then, on March 10th, we lost it and sold 200 points. We spent the entirety of last week back-testing it from below over and over (it was 5755 most of last week), testing it 4x and selling each time. After this many tests, I was looking for this structure to recover this week, triggering a squeeze. I wrote last Friday at 4pm: “The pathway here would look something like defend 5699 then work back up to 5755. Perhaps 1 final dip there, then breakout. 5782, 5795, 5809, 5824, then 5850 are the targets for the next leg.” Right off the Sunday open we gapped up and we tested the megaphone again at 5755. We then took off getting to 5836 high so far this week. However, we could not stay seperate from this structure for long. Where did we find ourselves yesterday (and today for that matter) at the close? You guessed it, we back-tested the megaphone, setting a low of day yesterday at 5740.

I wrote yesterday at 3pm: “My general lean is as long as bulls can hold the megaphone backtest at 5740 (5720 gap fill lowest) we can rally back to 5797, then above there, bulls are back in business and we resume higher to 5815, 5836, then 5850” We saw exactly this today, we filled the Sunday opening gap down to 5720 to the exact tick at 9:40AM, which was the low of day.

We can see here how this one level set the November low, December low, and the January low. It then caused a 200 point March flush on its failure, saw 4 major back-test sells last week, then its recovery Monday this week lead to a nearly 100 point squeeze. It then re-tested again yesterday, and we spent most the day here today yet again, testing it over and over.

After 4 red weeks in a row, ES finally saw a green week last week. Tomorrow will be important, and ES will need to hold this 5740 zone to put in green week #2 and keep this relief rally going. Can it? In today’s newsletter I’ll talk this, I’ll do a deep dive into how ES breaks out, trends, forms bases, breaks down, then backtests the breakout zones, relating this to my three setup types. This is a little advanced, but good to know. Finally, I’ll discuss the actionable trade plan for tomorrow.