As readers know, the theme for the past several months has been buy dips. The dips vary in size, speed, duration, structure, but they all resolve the same: They get bought. **After a 400+ point rally in early August (which we were onboard for) ES began its first slow, controlled dip over the last couple weeks. Since mid this week, bulls have been trying to buy it as always, constructing a shelf of lows mostly around 7659. **
**How do bulls buy dips in ES? **As I frequently discuss all major rallies in ES start on Failed Breakdowns, because Failed Breakdowns are how institutions accumulate. Institutions accumulate when ES flushes hard and goes elevator down - losing, and then recovering a big previously set low. In doing so institutions are able to trap shorts that are chasing, use them as liquidity, then price rips the other way when the low recovers. Usually, this process correlated with an external headline shock as institutions love to use headlines for liquidity to trap shorts (or in rare cases, they/insiders are aware of headlines in advance).
We saw this today. Early this morning ES lost the Tuesday 7622 low of day by 4 points. We then recovered (Failed Breakdown), and ripped. This rip though ultimately just took us back into the 7659-7733 range we had spent much of the last week in.
**The question for today would be if ES could head up that range. **My guess was yes. I wrote Tuesday at 4pm: “ES is rangebound 7659 to 7735-45. My general lean is ES can fill this range out to the upside with 7681, 7704, 7714, then 7735-45 en route (But 7659 must recover to see this). Bear case discussed above.” We rallied nicely to 7681+ today.
Can this bounce sustain? In today’s newsletter I’ll expand on this, I’ll go over today’s Failed Breakdowns (these are key to know), and I’ll discuss the actionable plan for tomorrow.
