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. **Yesterday ES was tested with a massive dip and bulls bought it as usual. **
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.
**We saw this play out yesterday after FOMC. ES went elevator down from ~7700 down to 7570’s. **The task for today was therefore for bulls to put in a Failed Breakdown and short squeeze. I wrote in yesterday’s newsletter: “On August 3rd ES set a major low at 7611-16 (there is a shelf here) recoveries of this are actionable.” We recovered this last evening, and ripped. Targets (per yesterday’s newsletter) were: “My general lean is ES can backtest 7643-45 (this was a big shelf we broke down after FOMC), dip, then recover. Targets are 7687, 7714, 7728 to fill the Sunday gap.” This played out perfectly and we hit 7714 this morning.
Is the bottom in? 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.
