Relief Rally or Bear Bounce? Why the First Break You See Is Often False

With little to rock the boat over the weekend the markets are seeing a little overnight relief rally, and I am wondering how long this will last? Is this a bear bounce?

The market’s been handed its 2018 lines and is word perfect for a post midterm script.

Is Trump’s post midterm going to be the same as his prior midterm, a bear calamity?

With VIX popping higher and holding (for the moment) we can expect the short term moves to be farther and wider. That doesn’t mean smoother, but the targets we aim for could be seen a lot quicker, which is all good.

Bottom line: higher vol, more TACO trades, wider intraday moves, lots of nonsense.

It’s Veterans Day in the US on Wednesday and we could see one of two extremes, as usual when the markets are open and there is a holiday: sput sput fizz or fireworks. As usual we will find out afterwards which one it was. This is why it’s important to have rules. If you are trading and your trade sets up, the trade goes on, simple as. If not, leave it alone.

It might not take much, or a headline, to move these markets, as the skittishness and jitters are baked in right now already.

Scroll down for the inside day setup I’m watching on the S&P, crude back at its range lows, the 2 Bitcoin levels that decide its next move, and this week’s Double Dippers.

Market Snapshot – a little overnight relief rally

The futures are bouncing after Thursday’s flush and Friday’s narrow day.

• S&P 500 futures (ES): 7,437.00, +0.45%. Pushing towards Friday’s highs overnight.

• Uncle Dow futures (YM): 51,783, +0.76%.

• NazQuack futures (NQ): 27,175.00.

• Uncle Russ futures (RTY): 2,791.3, +1.09%.

• VIX: 23.69, -7.57%. Popped higher and holding, for the moment. The VIX mean reversion trade has at least reloaded again, which makes for a nice addition. The clustering is what happened back in March when a similar pop developed.

• Gold futures: 4,108.5, +0.71%.

• Crude oil futures: 89.98, -0.40%. Back at the range lows (more below).

• Bitcoin: 74,121.90. Attempting to push through the range lows (more below).

NASDAQ Seasonality – a bear calamity?

The Stock Trader’s Almanac flagged Trump’s first midterm year, 2018, as an analog back in August, and say 2026 has tracked it almost step for step, post-election reversal included. By their count Thursday’s 5.5% drop was NASDAQ’s worst day since April 2025, leaving it in correction nearly 12% off its 6 Oct record, below its July low and the 200-day moving average, with 24,000 the next support. They put it down to the Democratic sweep, AI regulation fears, Hormuz and data centre doubts all landing at once.

In 2018 NASDAQ bounced around the midterms, then slid more than 20% into a Christmas Eve low, before gaining 35.2% in 2019. Their message: don’t let one ugly day shake you out.

© Hirsch Holdings Inc, StockTradersAlmanac.com. All rights reserved.

Expert Insights – the VIX mean reversion trade has reloaded

What VIX near 25 pays a seller. SPY’s implied volatility went from 15.9% to 20.8% in 2 weeks, which pushes the 1 standard deviation line on a 30 day trade from about 4.6% away to about 6%. Same odds, about a quarter more cushion, or a quarter more credit at the old strike. The catch is that premium rises because bigger moves are expected, and last week delivered them, so it pays for a harder job rather than offering a discount. Worth taking where the trend held, not where the chart broke.

What to expect. Volatility clusters: a jump to 25 tends to spend weeks between 20 and 30, with sharp days both ways. The calendar keeps premium bid, with CPI Tuesday, Cisco Thursday, Nvidia on the 17th, November expiration on the 20th and a Fed meeting on 9 Dec with a hike priced at 77%. Least certain, the year after a midterm has historically been strong, and the weeks after the election have often marked a low.

The practical version: sell smaller, sell farther than in October, keep the risk defined, and don’t try to catch the first spike. There will be another.

SPX – the side that breaks first is often a false direction

Looking again at the daily charts to get a feel for the landscape around the recent weirdness, Friday saw an inside day on the cash markets, and narrow ranging on the futures when you consider the outside of regular hours moves.

As most of you know, when an inside day appears my usual first thought is that the side that breaks first is often a false direction in the short term (intraday and likely tomorrow) most of the time. You can see this most recently on Tuesday 3rd Nov and Monday 19th Oct, when we saw inside days and both the highs and lows were taken within 1-3 days or the same day respectively.

There are LOTS of examples to look at. Another way to help visualise what’s going on, and why it might be happening, is that intraday these are short term consolidation patterns and a lot of traders will bracket the range and hope for the best on a breakout move.

The retail breakout plan, in full: bracket the range, set the stops, make a donation.

As the big dawg traders who are looking for liquidity also know this, prices can get pushed and nudged around to release that retail liquidity, which they are on the other side of, and with no real buying (assuming a break of the high), when that stops you will see the real move start, as they can start selling hard into the rally and false breakout, and you’ll see price push lower (in this example).

We used to call this a stop run back in the day, but it has had various names. Commonly most folks know this as a liquidity sweep¹ without really understanding the setup and context.

Now you know!

¹ Previously known as your stop loss.

Anyway, price is pushing towards Friday’s highs in the overnight pre-market trading, so I’m going to assume the high gets broken first and then it’s looking for that break back into Friday’s range for the bear setup. I’ve got to keep an open mind for an actual bull setup too, and that’s why we have patterns and setups.

I’m leaning towards the bear move, obviously.

Crude Oil – again what we thought it would do

Crude, it turns out, is a subscriber to my 6 money making patterns methodology, and is doing its damnedest to show ’em off like a pair of Victorian ankles.

Crude oil last week did again what we thought it would do, and pushed from the range highs back to the range lows after the breakout back into the prior range. This is exactly the pattern we just talked about on the S&P potentially developing via an inside day. It’s a range, price broke out, then broke back into the prior range and moved from the range highs to the lows.

Now we are back to the range lows, and with nothing new developing (aka a bear breakout), a push back higher to the range highs is expected.

Bitcoin – evolving and mutating again

Lab notes, Bitcoin: specimen has grown another range.

BTC is evolving and mutating again. This also did what we thought it would do, and price pushed from the range highs to the lows last week and has now attempted to push through the range lows.

I’d like to see price push below 73,250 for a bear breakout, and above 76,250 for a bull range trade.

Double Dippers – a nice deep dip opportunity

RSP, which is the equal weighted S&P, is setting up a nice deep dip opportunity.

SPY is in the start of a bull to bear transition, as price moved below the 100 period moving average.

XLV, the healthcare sector ETF, is setting up a nice shallow dip opportunity above $184.80.

XLU, the utilities sector ETF, is setting up a nice new bull trend and a new shallow dip setup above $43.61. It is close to voiding this with a close below the 100 period moving average.

Meme of the Day:

Trade well,

T2 Markets

p.s. Want full access to the SPX Income System (includes 7+ mechanical income strategies)? Join our team now!

Want to trade ‘OPM’ ?

Don’t risk your own capital.... Get funded to trade 0DTE and other options strategies...

Click HERE to discover your funding options