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.
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 yesterday. ES rapidly went elevator down 80+ points to 7782 by 115PM. In doing so, ES flushed a huge 46 point low ES set at 630am Thursday. We recovered it about an hour later (Failed Breakdown). We ripped to 7845+ into today. I called for this in yesterday’s newsletter.
I wrote in yesterday’s newsletter: “My general lean is ES can defend/recover 7811/7803 then resume up to 7845, 7858, then 7872. 7872 is a magnet and backtests the shelf we broke down on Wednesday that triggered the sell we saw yesterday. This is a magnet.” This tracked today and we ran to 7858+.
Ultimately, all this action was ES retracing/digesting/consolidating the recent 190+ point leg we had higher in the first week of October. A new trend leg is coming. Is it setting up for ATHs?
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.
