Pre-dump Stop Hunt Seems Likely HereMy previous forecast into the high of the rally was for a capitulation from the high, no major retracement in the drop and then once we broke the low - slam to 5500.
This trade went well in the first stages. Top where it was expected. Sell off in the style expected. New low as expected - but there has yet to be a big follow through.
This failed follow through (even although we are still sitting at the lows right now) makes me worry about the different trap variants of the break I expect.
Here's the setup I am looking at. It's a bullish butterfly-like pattern off the high.
I say butterfly-like because it doesn't perfectly fit the rules. C is a new high, for one. But I find this general M type of shape is useful for spotting lows or breaks. I tend to bracket all these things under a "butterfly". I know it's a misterm as per the books, but it serves the purpose I am using it for.
Three main things can happen off a butterfly decision. One is the 1.61 breaks and we slam to 2.20. This was the OG forecast of 5500. This is the rarer of the outcomes but it happens so fast there's not time to deal with it - which is why I planned and positioned for this into the rally high.
Second thing that can happen it a low. Butterfly can work. All can be well with the world. For a few reasons I don't think that's happening but it's a risk to be aware of. This could be a low.
Finally, we have the dead cat and break pattern - the one that is the primary plan for now if we make the bounce.
Here's an example of one of those.
Notice how this trades under the support and then puts in a series of small spike out candles - then it makes the bull trap. Stalls a while and then the next break is the actionable one.
Look at this little zone - we game this zone on both sides before the move.
These look similar.
If the break does not come now I think we'll see a bull trap atypical to the previous ones in that is moderately breaks the lower highs we've seen in all the previous rallies. Giving bears good reason to puke their positions and bulls good reason to think the low is in. Barcode there for a while and then setup the bigger trade.
Ideally here I'd like to make a little money in the rally. Use this to bankroll my speculative OTM puts.
Breaks lower are liable to cause an instant pivot to the plan for the run away break - but this bull trap move would be far more befitting of a pre-crash move I think.
It really does feel a little too easy right now. Would be so many fewer bears if we made that little spike and stuck stubbornly at the high of it for a while.
I've been hitting every rally in SPX since 6150. Done a lot of offloading of my positions yesterday and anything I am holding I have hedged with 580 calls.
We may be very close, within months, of a real break - but we might have a big distraction rally to come first.
No one has called me names for being a bear of late ... concerning. A good bounce would fix that.
