10/17/23, 7:52 PM Day 4 of Chop For SPX, A Breakout Is Close. What Are The Targets?

October 18th Plan

Yesterday, my newsletter was entitled “ES is basing for a big move, What Way?”. This
continued today. It is important to zoom out out to the big picture context and recall
that last week, ES put in a 187 point rally from Oct 6th to last week high. This rally was
caused by ES reclaiming its core bull market trendline from October 2022 on Oct 6th.

A er this rally, ES has spent the last several days building a large base mostly between
4360 and 4410-20, playing ping pong. Today, I was looking for this base to ll out, and
this played out extremely well from yesterdays plan. I concluded my newsletter
yesterday by writing the following: “Now its time to base build. My general lean here is
that ES can ll out the 4408 to 4366 range ….This would then produce another leg up to
4418, 4439, then 4450+”. We did this today, and we started the day with a dip down to
4366 support almost to the tick (4365.75 low of day), defended, then saw a massive 52
point run to 4418 resistance/target before ES ran out of steam and began ping ponging
in range again.

Despite a lucrative run today though, ES has ultimately put in lots of volatility to go
nowhere, as we continue to base in that same 4410-20 to 4360s range. This will
inevitably result in a large trend move. But what way? In today’s newsletter, I’ll talk
this, I’ll then go over the setup that produced the large morning squeezes we had the
last two days (this is what I call a back-test entry, and is a critical tool for the toolbox).
I’ll then discuss the actionable trade plan for tomorrow.

**********Important Housekeeping Notices*********

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10/17/23, 7:52 PM Day 4 of Chop For SPX, A Breakout Is Close. What Are The Targets? October 18th Plan

E ective from Monday September 11th, ES rolls over from September (ESU2023)
front month, to December (ESZ2023) and September which has been the actively
traded contract for the last 3 months will formally expire Friday September 15th
and stop trading completely. Rollover for ES is once per quarter. If using
TradingView the ticker remains ES1!, it is /ES on TOS, /ES on E*trade etc.
Currently, the spread between SPX and ES is 31 points. This will gradually shrink
and equalize over the weeks following and I will always keep the updated spread
here.

VERY IMPORTANT FOR NEW READERS: It is absolutely essential for all new readers
to read my methodology section. It can be found both pinned on the home page of my
Substack (tradecompanion.substack.com) and can also be found at the following link: My
Trade Methodology I will update this page periodically, and when I do, I will post here.
This page provides a broad overview of all the components of my methodology, risk/trade
management system, as well as entry setups and trade philosophy. Through time reading
the newsletter, these concepts will crystallize in practice and I provide the more ne details
in each daily newsletter.

All times listed here are in EST.

I made some more minor tweaks to the failed breakdown section of my

methodology page on Sunday, October 16th 2023.

If your chart doesn’t match mine, you may need to remove the rollover gap. Usually
there is a “back-adjust” setting in most platforms. In tradingview its “b-adj” on the
bottom right.

*******************************************************************

Today saw yet another massive squeeze higher and this week price has been stuck on
repeat lling out a range. A er a sello Friday, we started this week with a rally from
4360s to mid 4410s. Overnight/into this morning, we saw a sell back down to 4366
support, then another squeeze back to ~4420, then another dip again this a ernoon.
This action was largely what occurred late last week as well.

Why has price been doing this? Recall markets only do two things at their most
fundamental level: They trend (what I call Mode 1) then they consolidate (what I call
Mode 2). This can also be called basing, consolidation, range trading etc.

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They don’t do these two things randomly either, but rather markets alternate between
them. What did we do last week? We rallied 187 points (Mode 1 - trend) from Oct 6th to
last weeks high. What have we therefore done since then? We’ve based in a 80 point
range ping ponging between mid 4350s and 4410-20 zone. Expansion leads to
contraction leads to expansion, and this base will also lead to a period of sustained trend
when we break out.

In range bound trading (like in all conditions intraday, and as readers have seen for the
last week) “bulls” lose, “bears” lose and only traders with exible biases and level to level
trade management win. When it comes to trading ranges and executing inside them, I
trade them the same way I trade all conditions. I identify zones of interest (In a range,
usually support. Today, it was the 4366-75 zone to get long), wait for price to come to
me, take it level to level, leave a runner, reset bias, do it over. This model works
regardless if is the choppiest range day of the year, or the biggest trend day of the year,
or both. Those looking for “home runs”, lose. And as a bonus - you don’t need to know
what kind of day it will be in advance.

Zooming out to the broad context is also extremely important when price is stuck in a
range. It is the context that ultimately determines what way the range is likely to
break, as well as what types of trades are likely to work in a range. In today’s case, the
context was 1) We reclaimed a core bull market trendline on Oct 6th and 2) We rallied
into the base. Both these factors tend to favor a bullish resolution (though as always -
this is a probability, not a certainty. There is no certainty in markets, only slight leans)
and both these factors contributed to my lean today that we test 4366 then rally. The
broad pattern that this week long base forms does not t into any clear category, but I
would generally label it as being a broadening formation/megaphone still, with
resistance (connecting the Oct 10th and Oct 12th highs) up at 4455 now.

On to the core structures. These are the some big picture structures/levels that are
notable from highest to lowest. These are not comprehensive are some simply some
select major structures to take note of, nor are they predictive. I will be trading the plan
below, level to level, one move at a time.

1. 4478-85. This backtests the yellow triangle structure that we broke down way back
on September 20th, that ultimately began the 250+ point move lower. 4439 then

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4455 are important pit stop en route there.

2. 4418-24. Back-tests the horizontal line connecting the June 26th low, with the
August 25th low, and I consider this zone and important breakdown area that we
fell through in mid-September. I have talked about this level for days and readers
see further evidence why it is so critical. Last week, we tested this zone twice on
Tuesday, as well as an overthrow on Thursday. Today, we tested it again, and it
once again acted as resistance. It is less likely to hold now if retested, opening the
next big leg up and this is the upper end of the multi-day range.

3. 4375-67. This is a wider zone and this represents the downsloping blue trendline
connecting the June 26th and August 18th lows. This level was key all last week. We
broke it out last Tuesday causing a large squeeze to 4418. It remained a
battleground zone last Thursday/Friday, and is now support. Today, it tested again
precisely and defended. It is likely weaker now.

4. 4336 remains a major pivot that I have talked about for weeks. It is the back-test
(shown by the bolded green lower horizontal line) of the 9 month base we broke out
on June 1st, that started the “summer 2023 melt-up”. This connects the September
2022, Feb 2023, and June 2023 highs. Its been a battleground zone, magnet, and
actionable for weeks.

5. 4327. This is the core bull market uptrend line - shown in red - connecting the
October 2022 bull market low, with the major March 2023 higher low. This is what I
consider the bull/bear line: Bulls control above, bears control below. It was the
reclaim of this line on Friday October 6th that caused last weeks 100+ point rally,
and must defend on any backtests. 4336 to 4327 form a zone now.

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Trade Plan/Education

Before getting into today’s action I just want to go over in a little more detail the rally
we had yesterday morning as it was a great example of a few important concepts at once.
Recall that I was looking for longs on Sunday/Monday above 4358, writing on Sunday: “I
am interested in adding longs above 4355-58”. I went over this in more detail yesterday,
but this entry idea was because 4355-58 reclaim was a failed breakdown of last
Thursdays low. I gave 4360 as the entry for this which got me long Sunday evening a er
6pm as per plan, and it started a massive move up Friday morning.

As always though, markets always give multiple chances to enter. Recall what I call
technical analysis 101: Whenever price “breaks out” the breakout level then backtests,
and price usually rallies. Vice versa for sells. We saw this overnight Sunday into Monday.
At the Sunday open, put in a failed breakdown of the 4355 Thursday low, and started the
squeeze higher to 4370s. Then overnight, what happened? We back-tested that 4355
level from above, and squeezed again. Breakout, back-test rally. Technical analysis
101.

It is also worth adding that this entire structure formed an inverse head and shoulders
pattern shown by the blue boxes below. All of this is what I call con uence. We had the
failed breakdown, the backtest, then the broader inverse H&S pattern, all of which
“caused” the Monday morning squeeze.

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Screenshot from a er the close yesterday.

On to today. I was holding my 10% risk free long runner from the 4360 entry shown
above into the close yesterday, and I added a little long exposure ~4400 around 4pm
which averaged up my cost basis, writing: “I am still holding my long runner from 4361
and trailing the stop up now via my trailing stop methodology”. That trade was managed
as per my usual trade management methodology with progressive lock ins at each
resistance on the way up, as discussed yesterday.

When I woke up at 730 at checked price, we were hovering around 4387-90 key support
near 4387 at the bottom. A nice breakdown short setup here, and I wrote yesterday:
“4387-90 is another high risk breakdown short, but as always, full acceptance of the zone
is required, and 4385 or so would trigger”. I passed on this one personally, but it played
out nicely for a level to level move for those who took it

We saw more dip at 830AM, and I wrote yesterday: “The 4375-4366 zone would be a zone
I’d be interested in trying a knife catch at. One could play the zone a variety of ways
(direct bid 75, wait for 66 to test and reclaim etc). Below there, we could see quite a deep
sell to 4322-25 minimum.”

I decided to get long at 4372 or so inside that zone around 930AM. We did hit 4366
exactly at around 10am though. This followed through explosively from here to 4387-90

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rst level up, and I managed as always: Took 75% pro ts at 4387-90, le a 25% runner to
go. I took more at 4399 next up, le 10% to go. As a brief side note, why did this 4366-
75 zone “work” for a massive trade today? Technical analysis 101 - it back-tests where
we broke out from yesterday morning. Breakout, back-test, rally is a fundamental
market tendency.

Having caught a big level to level piece of the action, I did my job and that means
sidelines for me/holding runners for the rest of the day. As always I did not catch all the
moves (I “missed” the entire morning sell and a ernoon sell) - it is not my job to catch
all the moves, and no professional trader does, or tries. Removing that idea is critical,
because it is a driver of FOMO, and FOMO is the driver of losses. FOMO forces trades
that are outside of high quality, pre-planned entries. My job is to wait for price to come
to a pre-planned zone that I have high conviction in (4366-75) take the trade, manage it
level to level, then get out, hold runners, and do nothing for the rest of the day but work
on charts.

I do the same template daily: I do 1-2 trades daily in the windows before 11am or a er
2pm only, entering only at pre-planned, high conviction zones, on A+ setups. I don’t
trade the window between 11am and 2pm as its o en chop. First trade is a win in the
morning, I hold the runner and I stop trading, only rarely trying one more in the
a ernoon. First trade is a loss, I trade one more. Both trades are losses, I quit for the
day.

Trade Plan Wednesday

Supports are: 4390-93 (major), 4375 (major), 4367, 4355, 4343 (major), 4335 (major),
4327, 4314, 4299-4302, 4288 (major), 4278, 4269-70 (major), 4263 (major), 4255, 4244,
4224-27 (major), 4212, 4205-08 (major).

In terms of lvls I’d bid direct: I am still holding my 10% risk free runner long and
this is a swing now for me. I will hold as long as above my break-even. We remain
in a total chop zone and I consider everything between 4418 and 4367-75 as being
pure noise. Traders can see now how these ranges work and expect more complex,
choppy action in this range. It is not hard to trade - as long as you do not over-
trade. Take your level to level piece and quit for the day. 4390-93 is rst support and
we are here as of writing. This is very well tested now. One could bid it at your own

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risk, or safer is to wait for it to ush and reclaim something like test 90 and pop
above 93. If we continue selling tomorrow, the 4375-67 zone remains a major
support cluster. It may have one good defense le in it, but this is not as a high
quality as today’s entry was. I’d likely try a nal knife catch here though, but I’d
probably make it half size. If one is unsure, wait for a test into the 60s then pop
above 4375 to try long. Below 4367, we could start a hard sell and I’d likely be
shorting. For those wanting to try catching knives, Its not of interest to me until
4343 at least.

Resistances are: 4403, 4408 (major), 4418 (major), 4424, 4430, 4439 (major), 4443,
4452-55 (major), 4462, 4471, 4478 (major), 4485 (major), 4496, 4505-07 (major), 4515,
4526, 4532 (major). In terms of spots to try shorts, 4418 is fairly well tested now. For
those who like counter-trending, its quite risky if we clear 4418, but I would
generally be looking at 4452-55 as a decent spot to look for points. 4439 higher risk.

Bull case tomorrow: No changes. Broad bull case in play as long as we are above the
bull market trendline from 2022 now at 4336-27. Short term for tomorrow though,
that 4375-67 zone must hold at the absolute lowest on any dips. As long as it does, I
continue to think that we are basing for a push higher that would target 4418, 4439,
4452-55 at least. In terms of spots to add on strength, as always this is tricky to
provide in advance as it really requires a real time read, but bove 4408 would likely
present a good possible breakout opportunity. As always - no chasing. I’d want to
see good acceptance of the zone rst then one could try long a little above for a
level to level move.

Bear case tomorrow: Begins on the fail of 4367. As always, I don’t chase. Its my #1
most important rule, because chasers get trapped. My goal is always to get in as
close as possible to either a recent high/low, or near a recent base. The more “red”
(for shorts) or “green” (for longs) behind your entry, the bigger the chance you get
trapped. If we test that 4375-67 support zone though, attempt another tradeable
bounce, and then it zzles out to accept the zone, I’d be getting short perhaps 4364
for a good sell. I’d be looking to 4343 at least on this but it could go quite a bit
deeper. Higher risk short would be on the fail of 4388 tomorrow, a er acceptance.
I’d be looking at a 4387 trigger for it.

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In summary for tomorrow: We remain in chop and 4418-4367 is total noise and the
action inside it is not predictable. My general lean is that as long as 4367 keeps holding
though, ES can ll out this range more then attempt a break out to 4418, 4439, 4452-55.
Ideally for bulls, 4390 can hold before this, but it is not fully necessary. If 4367 fails, we
should see a good sell that sees 4342 at minimum.

As always no crystal balls, no guessing, no predicting. I’ll be trading the above plan
following whatever path price chooses. Reacting level to level, one move at a time, take
pro ts, reset bias from scratch. Not choosing the path for price ahead of time, and
hoping it agrees with me. *You don’t need an opinion on where price is going to make
money*.

Important disclaimer on my trading philosophy: I am a day trader - this means I am

not a “bull” nor am I a “bear”. I have zero preference on where ES is going to be in a
month, a week, tomorrow, in 12hrs, or even in the next hour. What I do care about is
catching the next immediate move, from one level to the next, taking pro ts &
growing my account, then resetting my view from scratch. I do, however, post a
general lean/estimated guess here each day on what my bias is for price path going
forward. While it is good to have a general hypothesis on what path price will follow,
this always needs to come very secondary to the real-time execution of the trade plan.
The algos and professional traders you are competing against all day are not doing
crystal ball predictions about where price is going. They do not know, nor do they care
- they are *reacting* to actionable signals, and managing the subsequent trade with a
rigid risk and trade management process. This is the only way to make real money as a
day trader. This means whether tomorrow is a big red breakdown, a non-event day, or
an upward squeeze, I will be reacting and trading the price action level to level, one
move at a time, then resetting bias and moving on to the next trade. Let the price path
unfold as it chooses - React to the price action, don’t predict it. “Forecasters” and
“Traders” are totally di erent professions.

Trade Methodology.

My Method section has been moved to the home page and is pinned to the home page of
my Substack at tradecompanion.substack.com. This is essential reading for new
subscribers. It can also be found here.

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