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). Bulls bought it on Sunday, as they always do.
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 this week and as stated above, on Friday ES sold 135 points rapidly down to 7676 low of day Friday. **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 Monday and dipped as posted yesterday morning to 7705-07. Then, yesterday into today, we continued that leg higher.
Do bulls have more in the tank to back-test 7835? And then what? 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.
