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. It has yet to be sustainably bought.
**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).
**As stated above, last week, ES began its first retrace of this selloff selling down to 7658 Thursday evening. **Why did we selloff? As readers know, ES sells off in one circumstance only. When a well-tested, previously defended support shelf fails. Thursday/Friday August 13th/14th, ES built a support shelf at 7797 and we lost it last Monday, down we went. **This puts bears in control until the shelf recovers. **
**This does not mean we won’t see rips though via Failed Breakdowns. **
We saw this dynamic Friday morning. I wrote Thursday at 4pm: “As of writing, 7680 is first support and we’ve flushed below this. This is roughly the low for much of today and we set another low there at around 150PM today. Recoveries of this are actionable.” We recovered this early Friday morning, and popped. **We then spent much of today around 7680. **
**However, after a big breakdown like we saw of the 7797 shelf, the task for bulls is ultimately to backtest and recover that shelf in order to regain control. Until then, the tendency is to sell bounces. **
**Will bulls be able to do it? **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.
