Hi everyone! Today I’ll run through my usual scenarios for SPX and then give you a refresher on VCPs and how I use them in my trading.

SPX Review and Outlook

EOW Stats
High: 6,478.89
Low: 6,384.59
Close: 6,466.92

ATH: 6,481.34 (Aug 15)

SPX put up a huge green candle on Friday, gaining 1.52% in a single session. That move just about erased the prior ~2% decline, repeating the pullback + rally scenario. Price tested near the ATH but didn’t break through, and ultimately closed at 6,466.92.

Midweek, I saw signs of buyers not relenting and not letting the index move further down. Friday stocks ripped up once Powell’s Jackson Hole speech gave the buyers what they wanted to hear.

Scenarios I’m Watching

• Bullish Continuation:
  A clean break above the all-time high would confirm trend continuation. Maybe even a gap up. Then, depending on how sharp the move is, I’d look for retests to the daily 5 EMA or 10 EMA.

• Sideways Digestion:
  After a one-day surge like Friday’s, we could see a short pause within the 6,445 and 6,481 range.

• Retest Before Higher:
  If we do pop through the ATH, a common path is to retest that breakout level before continuing. Watch for price to revisit 6,481 and hold it as support.

• A Scenario for the Forever Bears:
  If Friday’s move was a one-day trap, SPX could roll back over, breaking the 10 EMA, and eventually testing the June–August uptrend or the 50 SMA.

Right now, momentum favors the bulls. I’ll keep watching how SPX handles the 6,481 level and whether we blast through, retest, or chop sideways, the next move will be shaped by how buyers and sellers respond at each level.

VCPs and How I Trade Them

One concept that is a staple in my trading is the the volatility contraction pattern or VCP. I was first introduced to it a few years ago through the book Trade Like a Stock Market Wizard by Mark Minervini. While this concept is not original to him, I find that he can take complex concepts and relay them in an incredibly simple way, making his book one of my top recommendations.

Mark Minervini describes VCP’s as one of the most common characteristics of healthy price structures. The idea is simple: volatility shrinks from left to right as a stock builds out its base, and volume contracts with it. Each swing gets smaller, which creates the conditions for the next move.

The role of these contractions is to bring price closer to a line of least resistance. Each time volatility contracts, risk becomes easier to define, and the chart moves closer to a decision.

If you are an investor, you want to see this type of pattern on the weekly and monthly time frame. As a trader, you’d look for this contraction on the daily, hourly, or smaller chart time frame depending on your trade chart.

How I Trade the VCP

For my breakout strategy, I look to see that my stock has already formed a bottom, and that the price on the daily is close to reclaiming the 10 EMA. On the hourly, I look for price, moving averages, and volume to contract, giving me clues that we may be ready to rise again. I typically wait for the price to reclaim the daily 10 EMA to confirm the swing and get in.

 AXP

Here we see price and volume tighten after finding a bottom. The price swings were wide at first, then gradually narrowed and the moving averages pulled together. I highlighted just the area where I start to get interested for entry (the VCP within the VCP), but the entire base forms that VCP structure.

META

For my pullback setup, I wait for the breakout to establish the new trend and then get in once the candles tighten against the moving averages. In this META example, you can see price tightening before rolling lower again, creating opportunities to join the downtrend. On Friday META climbed over 2% and we can see the contraction again, this time potentially digesting for some more upside.

The takeaway: contraction comes before expansion. Whether it’s a base after a bottom, a retest during a decline, or a pullback on a rise, the same principle applies.

But a super important note: This pattern is one part of the bigger picture. When I see price tighten like this, either against a moving average or within a longer base, I have already established:

1. The stock is a rising stock (Stage 2 Uptrend < also a Minervini description)

2. My weekly and daily charts agree with the potential trade

3. The markets are trending in the same direction of my potential trade or have been consolidating and also tightening up themselves

Trading itself tends to be pretty simple - it is waiting for combined data to give us the greenlight. The most challenging part still remains the discipline to follow our rules, to give up ideas that aren’t working, and to remain patient for the setups to develop.

Looking forward to see what plays out this week and I wish you all the best! Make your moves objectively, with clarity, and confidence!

Thanks so much for tuning in! ‘Til next time!