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. We saw this last Wednesday after FOMC. This was a particularly large dip (over 100 points in a little over an hour), and as a result it would mean the dip buy would be particularly large. It was and we’ve ripped 400+ points since then. We were on board for the entire thing.
**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 exact dynamic after FOMC Wednesday July 29th. ES went elevator down down to 7324 from 7470’s selling 100+ points in short order. This was a rapid sell that unfolded in an hour or so - exactly what we want to see. In doing so, ES lost the major June 11th low at 7325 by 1 point. We recovered 7325 by 4:35PM that Wednesday, and began a vicious rip Wednesday evening that ultimately lasted into this weeks highs.
After a rally like this, ES for the last few days began the process of digesting the move, and building a range which was mostly 7723 to 7800 with 7751 being a big pivot in the middle. I wrote Thursday at 4pm: “After a 3 day lockout rally ES finally began a dip today. Bulls must recover 7751 to see a rally back to 7767, 7783, 7800.”
We recovered 7751 Friday and ripped yesterday to ~7800. Today the task for bulls was to continue building this range. I wrote yesterday afternoon: “My general lean Monday is that ES can fill out this range more, then breakout. Ideally ES can hold (or quick trap below 7751 in the process). When the range is ready to break, we can run to 7820, 7845, 7893.” We continued to work this range more today dipping down into it.
**Is ES coiling for another breakout? CPI decides tomorrow. **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.
