As readers know, the theme for the past several months has been simple: buy the dips. The dips vary in size, speed, duration, and structure, but they all resolve the same way: they get bought. **Last Friday October 16th for example we saw a large, 138 point flush lower to 7677. This week, bulls bought it, ran 140+ points, then sold again back to 7677 today. **
How do bulls buy dips in ES? As I frequently discuss, nearly all major rallies in ES begin with Failed Breakdowns because Failed Breakdowns are how institutions accumulate. Institutions tend to accumulate when ES flushes hard and goes elevator down—losing, then recovering, a major previously established low. In doing so, institutions are able to trap shorts that are chasing the move, use them as liquidity, and then drive price sharply in the opposite direction once the low is recovered. This process is often correlated with an external headline shock, as institutions love to use headlines for liquidity to trap shorts. In rarer cases, they—or insiders—may be aware of those headlines in advance.
This is what we saw early this week - after last Friday’s selloff to 7677. As newsletter readers recall, on Sunday ES recovered 7718 which was a big low from last Thursday October 15th. It recovered, and we ripped 140 points to this weeks highs. Then since Thursday, ES dipped again to 7650’s this morning. By dipping to 7650’s, ES lost 7677 which has been a massive zone since September. We set lows here on September 18th, October 1st, last Friday, and this Thursday. The Failed Breakdown of this would be actionable. I wrote yesterday at 3pm: “7677 is under that and this is where things get interesting. This was the major low last Friday from which we put in this weeks 100+ point leg up. The Failed Breakdown here is obviously actionable.”
We recovered this today and popped 20 points, then lost it again. It must recover to rally next week.
Ultimately though - despite all this - ES has been stuck in the same morphing range for several weeks which had mostly been 7677 to 7803. Can we head up the range next week? In today’s newsletter, I’ll expand on this, review today’s Failed Breakdowns—which are key to understand—and discuss the actionable plan for tomorrow.
