TL;DR
• After a week of selling, the market reversed violently on Friday. This was a classic short squeeze.
• The trigger was a perfect "Failed Breakdown" setup below the key 6690 support level, a textbook move institutions use to accumulate positions.
• This rally has been a "gap and go" event, hitting every upside target we discussed, including 6851 and 6877.
• The big question now is simple. How much more gas is left in the tank for the bulls after a three day rocket ride?
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Quickfire Highlights
Government Shutdown Averted
Weekend headline risk was a non-event, creating the "gap and go" scenario we mapped out.
Bull Flag Breakout
The squeeze broke price out of a week long bull flag pattern at 6795, adding fuel to the trend.
We are in a powerful, trending, short squeeze environment. The market's DNA is on full display here. An "elevator down" move last week was followed by an equally aggressive "stairs up" rally. The price action is vertical and respects almost no pullbacks. This is not a time to be a hero and fight the trend. The behavior is clear. Dips are being bought, and bears are being punished relentlessly. The current regime is pure momentum until a key support level breaks.
The entire rally was built on one of our core setups, the Failed Breakdown.
• The Setup: On Friday, the S&P 500 futures (ES) flushed below the critical October 22nd low of 6690. This move is designed to trigger stop losses and trick sellers into shorting a "breakdown."
• The Trap: Price briefly dropped to 6655, then powerfully reclaimed the 6690 level. This reversal traps all the new shorts and forces them to cover, creating immense buying pressure.
• The Result: This reclaim was the trigger for the 200 plus point rally we've seen since. It's a classic signature of institutional accumulation, and it's why we don't short breakdowns blindly. We wait for the confirmation of failure.
The structure has shifted from bearish last week to aggressively bullish. Bulls are in complete control as long as we hold key support.
• 6690: This was the pivot. The failure to hold below this level marked the bottom of the selloff and the start of the squeeze. It is now a major support level far below the current price.
• 6834 / 6851: This zone was yesterday's resistance and is now the first key support area. As long as price remains above here, the immediate trend is up.
• 6877: This was today's primary target, which was hit perfectly. Price may consolidate around this area.
• Upside Targets: The next levels to watch on a continuation are 6889, followed by the major magnet at 6918.
The plan is to defer to the trend, but not to chase blindly after a three day vertical move.
My lean is to watch the 6851/6834 support zone closely. If we get a dip into that area and it holds, it could offer a defined risk entry to play for a move towards 6889 and then 6918.
If we begin to lose 6834, the rally may be out of steam, and a deeper consolidation or pullback could begin. A loss of that level would mean it is best to be patient and wait for a new setup to form. There is no high quality trade if we are simply chopping between levels. For now, the bulls have the ball.
Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before making investment decisions.