TL;DR:
Strong bias towards 4450 now. Would ideally like to buy 4100 - 4200. Possible bear traps setting up at 4300.
Bulls easily ran the last potential bear level. Producing short term price action signals for bears around the levels but then breaking through and running strong. This has likely been a bull breakout and puts near term plans back to looking for optimal bull entries.
In a previous post we covered the three main types of bull traps we have. The shallow range based one, the full 76 correction one and the modified spike out (Some type of harmonic) one. Recently we tried to bet on where I’d think would have been optimal for SPX shallow bull trap and it broke. I think this means we’re heading to at least the 76.
This now gives us an upside target of at least 4400 - 4450. We currently trade 4290. It feels really tempting to get long here but I’d much prefer to be getting long somewhere closer to 4200. There’s a case to be made for chasing the bull (We’ll get to that) - but a correction to buy would be much better.
We’ll cover our plan update in three sections:
Looking at what a classic 76 bull trap, spike out and full bear trend failure would look like from here (Typically).
Planning buy dip/chase break levels for the 4400 target.
Planning bull failure levels, stops and possible bear flip levels.
Looking at what a classic 76 bull trap, spike out and full bear trend failure would look like from here (Typically).
This is a broad strokes plan. When it comes to actionable trading in these swings there are additional considerations for practical planning which we’ll cover in the latter sections.
Simple fib norms of a rally off a drop suggest once we’ve seen the 61 fib hit we’re most often going to spike (At some time) to the 76 fib. Usually even in a bear move a head fake higher will come here. A bear move will stop around the 76. A bull move will break it and commonly hold a retest after hitting 86.
So our odds of a bear here would usually be really slim (Note, still on the broad strokes. Odds of us selling off this level are fairly high, but it’s not likely to be a real high). At this point the odds are firmly towards 4450 hitting - and probably hitting in sensational fashion (If it’s a real high, this should be a jump-scare fast move).
If 4620 hits, the odds are low that we’ve made a real top in 2022 (Granted, some of the alternative spike out scenarios would give only marginally new highs - but would imply a high made above 2022 drop). I don’t see much point speculating right now if a new high would be a massive blow off over 6000, a new bull trend or just a spike out.
The best thing to do is just plan where the best levels to enter after flash crashes would be to gain high RR entries and then be able to choose how to manage longs with trailing stops rather than guess the nature and magnitude of a rally, which I expect to be very difficult in real time if we’re trading slightly higher than 2022 high.
What we’d usually see in a 76 break is when the 86 hits we get a big dummy crash move ending somewhere 61 - 76 fib. Once we’ve seen this failure of the 76 and the 86 hitting we can plan for this. It’s a really simple trade if it works, but always counter intuitive because price will be in what appears to be a crash after the 86 top.
If these swings to 86 and 61 fibs hit, we’d have further formed swings of a potential butterfly spike out top, which would imply a high a bit over 5000
.
On the bear side of this move we can short into the 76 area if we’re seeing hyper parabolic action that ranges out and we can add to our shorts on the retesting of the 61 fib.
Planning buy dip/chase break levels for the 4400 target.
Strong chance now we’re heading to at least 4400. Big bullish bias on the swing, but very reluctant to get long here. Would have to see a breakout and retest to want to be long around 4300. But we could be in for really good long ops if we see a drop. Now we’ll plan retracement levels and levels to chase bull breaks.
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