How to Trade a Rally that Nobody Expected or When the Market Refuses to Break Under a Critical Support

On the last trading day of January 2022 ES and NQ started a new trading session at a cyclical support (see the green horizontal lines) (see the chart below). That support had been tested but held three times before. Every new test of a support increases chances for a breakdown.

ES, NQ 60 min charts, 9–11 AM EST, 1–28–2022

Everything looked and felt like that time support would not hold…

But 40 minutes later the market was still at the same spot:

ES, NQ 60 min charts, 9–46 AM EST

… and 30 min later the market kept balancing right on the edge of the important support:

ES, NQ 60 min charts, 10–04 AM

And this is when something very important happened that actually defined the direction of the next big move. At 10–05 AM EST the Monkey Cycle Trader Indicator printed a new cyclical support at 5 min timeframe and both, ES and NQ turned up strongly:

ES, NQ 5 min charts, 10–17 AM EST

At that point that new micro 5 min up cycle changed the balance in favor of bulls. The main question at that point was where a new cyclical resistance would stop that micro rally. The new cyclical resistance levels (the dark red horizontal lines) were printed at 10–25 AM. The newly printed cyclical resistance on 5 min chart confirmed completion of an upcycle and start of a new down cycle. Both ES and NQ started to move down as they were respecting the cycle.

ES, NQ 5 min charts, 1–28–2022

But first NQ at 10–45 AM and then ES at 10–55 AM broke over that cyclical resistance. Break over a cyclical resistance means that the market switches from an oscillating range bound cyclical mode into a fast-moving trending mode.

Why that breakout literally determined the course of the whole trading day?

ES, NQ 60 min charts, 1–28–2022

The market spent the first 40 minutes of a new trading day trying to break under cyclical support printed on 60 min timeframe. When a cyclical support gets printed that means that a down cycle has either completed or is about to complete, and a new up cycle is about to start. What a new upcycle does is pushing price higher away from the cyclical support. That breakout on 5 min timeframe became a trigger that confirmed (i) completion of the down cycle and (ii) start of an upcycle.

This trading day has another important lesson to learn. Bears did have a great setup to break under support this morning. It had been tested many times before during that same week and one could imagine the level was no longer strong. Traders naturally felt that a breakdown is imminent. And this is why temptation to go short in anticipation of a breakdown was almost undeniable.

But today the market demonstrated one more time that it rarely does what the majority expects.

If you liked that article please check out the previous post:

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