Will Next Week Bring A Pullback For SPX? May 19th Plan
NOTE: This is a resend of the newsletter for Monday May 19th, sent out Friday at 4pm, for those who did not receive.
Its been one of the most lucrative runs in years and since April 6th, I’ve started this newsletter the exact same way: By reminding readers that bulls control, and that we are in buy dips mode. This has been highly repetitive I know, but its essential. Even for day traders, most losses are preventable and come from fighting the dominant regime. Conversely, life changing gains are made by respecting it. By starting each newsletter by making it clear to readers what the regime is (buy dips), and where it changes, readers have been able to avoid shorts and profit from what has been a 1100 point run.
From an intra-day perspective though, the structure of buy dips mode is similar each day. As I’ve also discussed at length that institutions buy dips in a particular way. They put in my core setup, the Failed Breakdown, whereby they flush a major low, trap shorts, recover the low, then squeeze. This is how institutions accumulate, and often times, they do it multiple times at the same level. This often “paints” on the chart, a bull flag. Readers recall that for the week prior to last Wednesday May 7th, ES built out a large bull flag. Last Wednesday after FOMC, we saw a massive Failed Breakdown where we flushed the prior days low at 5606, recovered, and I was long since then for what turned into a 300+ point rally, one of the largest of the year.
Heading into CPI on Tuesday, I was looking for this rally to continue and I stated at Monday’s close that: “Its been a hugely profitable run and I am +250 points now on my most recent long..My general lean is always to defer to the trend until it ends. This means bulls want to hold 5850, 5815 on any CPI flushes (I’ll be watching for failed breakdowns). Next target slate is 5890, 5910, 5926.” By Tuesday, we tagged 5926 exact, and spent the rest of the day Tuesday and yesterday building out another bull flag, which had resistance at 5925.
For yesterday, it was the same drill: Bulls would want to to put in Failed Breakdowns, defend the flag, then break it out. I wrote Wednesday at 4pm: “For tomorrow, as long as 5900/5890holds (or traps below and recovers) we can fill out the 5900-5925 range more. Breakout targets 5945, 5970, 5983, then 5600”. Yesterday we got exactly this. We dipped under the flag, recovered it by yesterday to put in my core setup: The Failed Breakdown, and ran to 5945 1st target which was the high of day yesterday.
Today would be more of the same, bulls just had to defend that flag at 5925 and run it. I concluded yesterday by writing: “My general lean is to defer to it. 5925 to 5882-85 was a bull flag we’ve built out since Tuesday, and probed above today. As long as that flag is in tact, next leg up sees 5953, 5970-75, then 6000.” This morning we back-tested 5925 exact, held, and ran to 5970-75
Is more upside coming next week or can ES finally cool-off? In today’s newsletter I’ll talk this, I’ll discuss a variant of my core setup (the Failed Breakdown) I call the "double/triple dip” Failed Breakdown which refers to when price puts in multiple Failed Breakdowns at the same level, representing high-level institutional accumulation. We saw this Tuesday-Wednesday at 5890-5900 to produce today’s rally. Finally, I’ll discuss the actionable trade plan for Monday.