Will The Recent Dip in SPX Get Bought Again? October 16th Plan
This week started off with a statistically significant rally that began last Friday: 4 green days in a row, totaling a 187 point rally from last Friday’s low to this weeks high making it the largest 4 day green stretch of the year. In addition to this, after 5 red weeks in a row, ES managed this week to finally put in its first green week, making it a reversal week.
After this substantial run which got to 4418-20 major resistance, ES began a corrective leg yesterday putting in its first red day, and today this followed up with massive bi-directional volatility. A large spike from 4367 to 4408 to start the day, followed by rejection down. In yesterdays newsletter, written after the close, I wrote: “Bulls put in a failed breakdown setup late day though and this is the *shot* at some tradeable bounce. My general lean for tomorrow is ES can try to play this out. This would look something like test 4390, dip, then try a move up to 4399, 4416-18”. This tradeable bounce played out to start the day and we rallied to 4390 overnight exactly, dipped, then managed to 4408 before selling to new lows for correction day #2.
After the above mentioned rally, ES has now retraced about half of it. The question now is, will the rally resume, and where? In today’s newsletter, I’ll talk this, I’ll then talk about my two core setups (the failed breakdown and the backtest) and how they were used to navigate the complex action this week. Finally, I’ll discuss the actionable trade plan for Monday.