•   After four consecutive red days, including a rare "Mode 1" trend day on Wednesday, ES executed a classic Failed Breakdown setup.

•   This specific setup, triggered after Wednesday's flush of the 6776 daily low down to 6771, ignited a strong short squeeze and upward rally.

•   The key resistance at 6818-22, previously part of a significant bull flag breakout, was retested, temporarily lost, then decisively recovered and defended.

•   Bulls pushed ES higher today, hitting 6858 and 6877+, confirming the momentum from the short squeeze and leaving bulls in a strong position.

•   The big question now is this: Is this the start of the infamous seasonal Santa Rally, or simply a temporary bounce before another leg down?

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Rare Mode 1 Red Day

Wednesday's open-to-close trend day, a "Mode 1" red day, was something ES had not seen since mid-November; it often precedes a market bottom.

The "Two Siblings" Pattern in Action

The market's predictable cycle of an "elevator down sell" followed by a "proportionately violent rip" played out perfectly this week after a critical failed breakdown.

6818-22 Becomes Key Support

This level, which was resistance from a one-month bull flag, was lost, then decisively reclaimed. It has proven its significance as a pivotal support zone.

This week began with a clear "elevator down sell," marked by four consecutive red days in ES, culminating in a rare "Mode 1" trend day lower on Wednesday. This aggressive selling created the conditions for a significant reversal. Following a textbook Failed Breakdown, where a key low was lost to trap shorts before a sharp reversal, the market shifted into a powerful short squeeze. We are now seeing trending upward behavior, a direct consequence of that initial downward pressure. This pattern confirms ES's tendency to cycle through periods of relentless selling, always followed by an equally strong rip higher.

Failed Breakdown

This setup was the catalyst for Thursday's and Friday's rally. After Wednesday's all-day sell, ES flushed the 6776 daily low down to 6771 in the overnight session. This move trapped a significant number of shorts, providing the fuel needed for a powerful reversal. The market reversed sharply, confirming the Failed Breakdown and initiating the strong upward move.

The "Two Siblings" Cycle

The market frequently exhibits what I call the "two siblings" pattern: an "elevator down sell" followed by a "short squeeze." Wednesday's "Mode 1" red day was a quintessential "elevator down sell." As anticipated, this vertical, relentless sell set the stage for a "proportionately violent rip" once the Failed Breakdown condition was met. We observed this exact sequence, with ES rapidly reclaiming lost ground.

The 6818-22 zone stands out as the most critical level. This area was the resistance of a significant one-month bull flag that we broke out of earlier in December. We backtested it on Tuesday, lost it on Wednesday during the "Mode 1" sell, but decisively recovered it yesterday. All day Thursday and into Friday, ES held firmly above this level, confirming its renewed strength as support. The initial flush to 6771, just below the 6776 daily low, was crucial for trapping shorts and sparking the reversal. From there, bulls systematically hit targets at 6832, 6845, 6870, and today extended to 6858, 6877, and beyond. The ability of ES to defend 6818-22 and continue making higher highs shows clear bullish intent.

Bulls have done exactly what they needed to do, successfully defending key levels and extending the rally. The focus for the next session remains on holding the established support. Specifically, bulls must continue to defend the 6818-22 zone. If there is a quick trap below this level, it should ideally be no lower than 6795, with a swift recovery back above. My general lean is that the rally has further room to run. If these levels hold, we can anticipate targets such as 6832, 6843, 6858, and potentially extending towards 6877 and 6910. The market is showing strong upward momentum after the recent shakeout, and the path of least resistance appears to be higher, with the seasonal Santa Rally now a distinct possibility.

•   Global Markets Eye Central Bank Stance Amid Inflation Data via Bloomberg (published Dec 18, 2025)

•   Tech Stocks Rally as AI Sector Continues to Dominate Headlines via The Wall Street Journal (published Dec 19, 2025)

•   Oil Prices Surge on Geopolitical Tensions in Middle East via Reuters (published Dec 19, 2025)

•   Fed Chair Signals Patience on Rate Cuts, Market Reacts via CNBC (published Dec 17, 2025)

•   Consumer Spending Data Shows Resilience Ahead of Holiday Season via MarketWatch (published Dec 18, 2025)

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