TL;DR
• The S&P 500 just completed a classic, week-long corrective cycle. It was a perfect example of price action following a predictable script.
• This cycle involved three distinct phases. We saw the "elevator drop," the violent "short squeeze," and the textbook "back-test" play out one after another.
• After testing the lows again today, the big question is whether sellers are finally exhausted or just reloading for the next leg down. Discipline, not prediction, is your edge here.
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Quickfire Highlights
The Three-Step Cycle
The market just gave a textbook example of its core "elevator down, squeeze, back-test" pattern.
6850 Breakdown
Monday's failure at the 6850 support shelf was the key trigger for this week's 100-point drop, exactly as we anticipated.
Failed Breakdown at 6748
Today's sweep of the weekly low, followed by a quick bounce, suggests buyers are attempting to defend this area with conviction.
We are in a clear corrective regime. The past week has been a choppy, non-linear leg down. This is not a market for chasing momentum. Instead, it is a two-sided environment where sharp selloffs are met with equally sharp squeezes. The market is respecting key technical levels with precision, which means fades at the edges of the range have been working well, but getting caught in the middle is a recipe for getting chopped up. The key is to wait for price to reach well-defined zones before acting.
• The Elevator Down: This setup triggered perfectly on Monday evening. Once the well-tested support shelf around 6850 broke, sellers took control and the price fell rapidly through every minor support, which is classic behavior for this pattern.
• The Failed Breakdown and Squeeze: On Tuesday, price flushed the 6750 low and then aggressively reclaimed the 6766 level. This trapped shorts who were chasing the breakdown and fueled a powerful 90-point squeeze. This is my core setup, and it played out beautifully.
• The Back-Test Short: Where do squeezes go? They often go directly back to the scene of the crime. The rally on Wednesday went right to 6851, the origin of the breakdown, and provided a textbook area for sellers to re-engage. The subsequent flush proved the level was still valid resistance.
Understanding the key levels is everything right now. They provide the map for navigating this volatility.
• Key Resistance: 6851 to 6862. This is the major breakdown zone from Monday. It has already been tested once and held perfectly. If bulls can manage to push price back above this zone and hold it, the entire bearish case comes into question.
• Key Support: 6748 to 6766. This zone represents the weekly low. Today's bounce from here shows buyers are present. A clean, sustained break below 6748 would signal that sellers are still in full control and would likely trigger the next "elevator down" phase.
• Internal Pivots: 6815 to 6818 and 6830. These are minor levels within the current range. Think of them as checkpoints. A bounce will need to clear these to have a shot at testing the major resistance at 6851.
Patience is the priority. The market just completed a full, logical cycle. Now we wait for the next clear signal.
My plan is to watch the edges of the current range. I have no interest in trading the chop in the middle. The bull case begins with a strong hold of support at 6748. If buyers can build a base there, a long trade toward the 6815 pivot could be an option.
The bear case is simple. A failure of the 6748 low would be a clear trigger to look for shorts. Alternatively, if we get another powerful squeeze back to the 6851 resistance zone, that could offer another shorting opportunity, but it would be less fresh than the first one. For now, the plan is to sit on our hands until price proves its next intention at one of these key levels.
Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before making investment decisions.