TL;DR
• 2026 started with a brutal five-day sell-off, completely ignoring the usual "Santa Rally" narrative, proving once again that technicals, not seasonals, rule.
• Our framework accurately called the correction beginning last Wednesday, after the critical 6935-38 support shelf finally gave way.
• Friday delivered a textbook retest of that failed shelf at 6938, followed by selling, only for a powerful "Failed Breakdown" setup at 6872-69 to spark a massive afternoon rally.
• Today, the bulls continued their work, pushing ES significantly higher and back toward the contested 6935-42 zone.
• The crucial question remains: Is this a genuine turnaround or just a tactical bear trap? Your plan for Tuesday will be key to navigating this.
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Quickfire Highlights
• Failed Breakdown Masterclass
Friday's 40-point rip was a perfect example of a Failed Breakdown off the 6872-69 support zone, trapping shorts and sending prices higher.
• The 6935-38 Rejection
After breaking down, ES precisely back-tested the 6935-38 shelf on Friday, only to reject and sell off for the rest of the day, confirming resistance.
• Bulls Take Back Key Levels
Today's early session saw bulls aggressively recover the 6935/42 breakdown level, a significant move after Friday's rejection.
We have been navigating a choppy, mean-reverting environment for the past week, marked by swift reversals and critical level retests. After a strong run into late December, the market shifted into a corrective phase. We then observed a classic support shelf failure, followed by a back-test and rejection. However, the aggressive buying into Friday's close, driven by a key failed breakdown, indicates a potential shift in short-term sentiment, moving us towards a test of prior breakdown levels. The market is now attempting to recover ground, challenging the bearish momentum, but not yet confirming a full trend reversal.
• Failed Breakdown (FB): This remains our bread and butter. Friday's strong afternoon rally, a 40 point rip, was a direct result of a failed breakdown around the 6872-69 support zone. Price swept below, trapping shorts, then reversed hard. This setup signals exhaustion from sellers and provides clear entry points.
• Support Shelf Failure & Back-test (SSFB): The breakdown of the 6935-38 support shelf last Wednesday was a clear sell signal. The subsequent rallies, particularly Friday morning's test of 6938, functioned as ideal short entries for those who understood the retest principle. Bulls need to recover these shelves, not just test them, for a sustained rally.
• Retest of Resistance: Today’s rally brought ES right back to the 6935-42 resistance zone, a crucial prior support that became resistance. How price interacts here tomorrow will dictate the next move. A clean break above would be very bullish, but a rejection implies further selling pressure.
• 6935-42: This is the absolute key zone. It acted as a two-day support shelf last week, then failed, and then was rejected on Friday. Today, we saw price reclaim it. Bulls must hold this level and build above it to sustain any rally. Losing it again would signal weakness.
• 6913-25: These are intermediate levels that bulls have reclaimed. Holding above them provides a buffer for further upside.
• 6872-69: This was critical support on Friday, the site of the failed breakdown that sparked the rally. It now acts as a key pivot. As long as price remains above this, the immediate bullish bias from Friday afternoon is intact. A breach below would be a significant bearish development.
For Tuesday, your focus should be on the 6935-42 zone. If bulls can consolidate above 6942, specifically on good volume, then we can expect continued upside momentum, possibly targeting higher resistance levels. This would indicate a potential broader recovery. However, if price rejects 6942 again, or if we see a failed breakout above it, then the dead cat bounce scenario becomes much more likely. In that case, expect sellers to regain control, pushing prices back towards 6913-25, and potentially retesting the 6872-69 area. Stay nimble, watch the order flow at these levels, and let price action confirm your next move. Do not assume a bottom is in; instead, react to confirmed strength or weakness at these critical junctures.
Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before making investment decisions.