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. Friday, ES was tested with a big one (135 points).
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.
If that is how bulls buy dips though, what causes the sells that precede them? **A major sell in ES occurs when ES loses a major shelf of previously tested, well defended lows. **We saw this last Wednesday and its what started ES lower into the current lows. I wrote in last Tuesday’s newsletter: **“Bear case tomorrow: We likely dip below 7838.” This 7835-38 region was the Monday/Tuesday low of day, we lost it, and sold ultimately to 7676 Friday low of day and this sell comprised a couple elevator down legs, the latest of which was on Friday for 135 points. **
**After a flush like this, we always get a squeeze on a Failed Breakdown. I wrote on Friday at 4pm: “**My general lean is ES can try again to backtest 7835. 7718 must recover to get started then we can rally to 7755/65, dip, then head to 7803, 7835.” We recovered Thursday’s 7718 low on Sunday evening to trigger a Failed Breakdown, and up we went to 7755/65 and dipped.
Do bulls have more in the tank to backtest 7835? 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.
