TL;DR
• November's theme has been clear, you sell the bounces. But those bounces have been incredibly violent, short, and sharp.
• These rips are not random. They are predictable events caused by a specific pattern: the Failed Breakdown, which institutions use to accumulate positions.
• We saw a textbook example on Friday, which set up a 170+ point rally. The question now is whether bulls can use that momentum to break the month-long downtrend.
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Quickfire Highlights
The Squeeze Engine
Friday's rally was a masterclass in how failed breakdowns work. The deeper the initial selloff, the more powerful the subsequent rip higher.
Holiday Seasonality
Thanksgiving week is historically one of the most bullish periods of the year, providing a potential tailwind for the current rally attempt.
We are in a corrective market. This does not mean price moves in a straight line down. It means we experience periods of sharp selling followed by even sharper, violent squeezes higher. The key difference between this and a true uptrend is that these powerful rallies eventually get sold. The recent action shows institutions are actively buying into forced selling at key levels, creating explosive reversals. The current regime is choppy and mean-reverting on a larger scale, but offers powerful trend-following opportunities on a smaller timeframe after a failed breakdown occurs.
• Failed Breakdown / Level Reclaim: This is the core setup driving the recent volatility and it is our primary focus. It works like this: Price sells off hard, breaking a key support level. Retail traders pile in short, expecting continuation. Then, institutions absorb the selling, push price back above the broken level, and trigger a massive short squeeze. Friday's reclaim of 6553 after undercutting 6543 was a perfect example. The size of the squeeze is directly proportional to the size of the preceding selloff.
The rally off Friday's low has been impressive, but the market structure is still in a downtrend until proven otherwise. Bulls have work to do.
• Ultimate Resistance: The big test is the downtrend channel resistance from October, currently sitting around 6755. This is the level bulls must break to suggest the month-long correction is over.
• Intermediate Resistance: Before 6755, bulls had to clear several levels, which they did successfully today. They took out 6638-42, 6674, and 6701, showing strong commitment. The next minor level is 6716.
• Key Support Zone: For the bullish momentum to continue, buyers must defend the area between 6605 and 6593. A loss of this zone would signal the recent squeeze has failed and put sellers back in control.
The general lean is that the market can continue to back-test higher levels as long as critical support holds. The holiday week brings lighter volume, which can sometimes lead to exaggerated moves.
My plan is to watch the 6605/6593 support zone. As long as we remain above it, the upside targets are 6716 and, ultimately, the major trendline test at 6755. I am not interested in chasing longs up here. Instead, I will look for signs of acceptance or rejection at these key levels. If we lose the 6593 support, the bullish thesis is invalid for now, and the "sell the rip" theme comes back into play. Patience is key; we let the levels guide the action.
Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before making investment decisions.