Scott Redler: Anatomy of the Great Post-Christmas Rally

The big rally off the 12/26/2018 low at 2346 wasn't easy to predict.

But, understanding some basic trading concepts could have helped you catch some of the move.

And they help you understand why I held multiple longs through this period (with some short hedges here and there for protection).

Or at least, traders could have stood aside instead of stubbornly shorting.

So let's break down the movie step-by-step.

On 12/26, the SPX broke below the 12/24 low at 2351. It hit 2346 and reclaimed 2351 for a Red Dog Reversal.

The index then closed at the highs of the day.

But one day's never enough. 

On 12/27, the SPX held the 50% retracement, which confirmed the Red Dog Reversal.

Then on Friday 1/4, the index broke above the 8 day with authority when Powell got 'flexible.'

The next trading day was 1/7, a Monday. We had another up day, showing more commitment to the move.

The index then held above the 8/21 day before breaking over a bull flag.

That led to a nice rally to the 2670 high.

So what's next?

On Friday, I told CNBC the following:

"At this point, if you haven’t bought the market this year, it’s not the most prudent thing to do to chase it today. At the same time, being short is frustrating."

And today's down day (1/22) is the first time in a while that a shallow dip hasn't been bought.

I've already taken down risk. Now, the key level to watch is Friday's 2647 low.

A close below that could mean a test of 2590-2625. 

Positions Disclosure: as of 1/22/2019 at 12:14 p.m. ET, Scott J. Redler was long CRBP, TWTR, SPY puts, AMRN calls; was short SPY