TL;DR
• Last week's aggressive sell-off was a trap, setting the stage for a violent reversal.
• A classic "Failed Breakdown" setup below the key October 22nd low triggered a massive short squeeze, a move we anticipated and planned for.
• Today's rally was a "gap and go" that perfectly hit our upside target of 6851.
• The big question now is simple: does this rocket have more fuel, or will sellers slam the brakes at this critical resistance level?
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Quickfire Highlights
Government Shutdown Averted
Weekend news of a deal in Washington fueled today's gap higher, removing a major source of uncertainty for the market.
Institutional Accumulation Signal
The sharp, V-shaped reversal off the lows on Friday is a classic footprint of large players buying with conviction.
We just witnessed a dramatic shift in behavior. The market spent last week in a sharp downtrend, an "elevator down" environment that punished anyone trying to catch a falling knife. That regime ended abruptly on Friday. The powerful squeeze has flipped the market into a strong, short-term uptrend. The current behavior is momentum-driven and parabolic. Rallies like this can extend further than seems possible, but they are also prone to sharp pullbacks once the buying pressure exhausts.
• The Back-Test Short (Last Week's Play): The dominoes started falling last Wednesday after the market broke below the 6851 support level. It then rallied back to retest that same level from below, failed, and triggered a 200 point decline. This was a textbook example of prior support becoming new resistance.
• The Failed Breakdown Long (Friday's Masterclass): This was the setup that changed the game. I wrote on Thursday to watch the October 22nd low at 6690. The market flushed below it to 6655, trapping aggressive shorts, and then powerfully reclaimed 6690. This reversal is a high-probability long signal. It marks an area where institutions absorbed all selling pressure and initiated a major squeeze.
Understanding the key levels is everything right now. They provide the map for what comes next.
• Key Resistance: 6851. This is the most important level. It was the breakdown point last week, and we rallied directly to it today. Bulls must break through and hold above this zone to prove they are truly in control. Failure here would be a major warning sign.
• Initial Support: 6766. This was Friday's closing price. If sellers take control, this is the first minor level to watch.
• Major Pivot: 6690. This is the October 22nd low. The entire bull case is built on the successful defense and recovery of this level. As long as we remain above it, the bulls have the advantage. A move back below would be a significant red flag.
This rally was incredibly strong, but chasing a vertical move right into major resistance is a low-percentage play. Patience is the priority for Tuesday's session.
My plan is to wait for more information. There are two primary scenarios I am watching. First, the bull case involves the market consolidating above 6851. I would look for a clean break, followed by a period of sideways action or a small dip that successfully holds 6851 as new support before considering new longs.
Second, the bear case involves a rejection at 6851. If we see strong selling pressure emerge here, a healthy pullback could be in order. A move like this doesn't come for free, and some profit-taking is natural.
There is no clear trade for me at the open. The risk is high after such a massive one-day move. I will be sitting on my hands and waiting for the market to prove its next intention.
Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before making investment decisions.