Yesterday Was Biggest Red Day In A Month For SPX. It Got Bought Today. Can Bulls Hold The Low? May 23 Plan
The rally since April 6th low in ES has been nothing short of staggering, and its been summarized with a simple statistic: Before yesterday - since April 21st - ES had only put in two red days in a row on one prior occasion (May 5th and 6th) and that dip was promptly bought for a 400 point leg up. Yesterday also marked two red days in a row, with yesterday being the largest red day since April 21st.
After 6 green days in a row to end last week, this was not shocking to see a dip this week (no market can go parabolic forever). As I’ve discussed at length, sells in ES only become possible when price loses a significant, well-tested, heavily defended support shelf. We started to see this on Tuesday. We spent from 2am to 2pm on Tuesday building a shelf at 5957, before flushing it and selling hard to 5905 early yesterday morning. I wrote on Tuesday at 4pm that: “5957 backtest is a possible short” and for those who like the short side, we rallied to 5956.25 yesterday which was the high of day, and sold over 100 points. This is technical analysis 101: Price forms a shelf, breaks it down, back-tests rejects.
However, one red day does not make a trend and as I’ve mentioned every single day since April 6th, ES remains in a broad buy dips regime. The dips vary in size and duration, but they get bought. How do they get bought? Through my core setup: The Failed Breakdown where ES flushes a low, traps, and recovers. For today, 5850 would be the level to attempt it, and it was yesterdays daily low and also a major support level in both early October, early November, and early January. I wrote yesterday at 4pm: “On an even shorter-term basis, if bulls are extremely motivated to buy this dip they won’t even lose 5850 from here (or if it does fail, just a quick failed breakdown and recovery).” We saw exactly that this morning, we flushed 5850 by 30 points, rapidly recovered by 8:50AM, and we were off. I concluded yesterdays newsletter by stating: “My general lean is ES can try some back-testing. As long as 5850 holds (or recovers no lower than 5836 on trap downs), ES can try a bounce back to 5890, then 5910.” We got to 5890 high of day then sold.
Will this was a good quality long, the question now is if bulls can hold today’s low. In today’s newsletter I’ll talk this, I’ll talk about today’s Failed Breakdown long and the cause of yesterdays sell (it was my secondary setup type: The Backtest Short). Finally, I’ll discuss the actionable trade plan for tomorrow.