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 October 16th for example we saw a large, 138 point flush lower to 7677. Last week, bulls bought it, ran 140+ points, then sold again back to 7649 last Friday. **Bulls bought this dip agan.
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 today. As readers recall, ES has spent much of the last several weeks in a large morphing range mostly 7677 to 7803. On Friday we sold to 7649 below this range. Recall that 7677 has been a massive shelf since September. We set lows here on September 18th, October 1st, October 16th, and last Thursday. The Failed Breakdown of this would be actionable. I wrote Friday at 3pm: “Generally the bull case is very simply that ES can recover 7677 and run up the range.”
At the open last night we recovered 7677 and ran. This week I was looking for ES to run up range writing also on Friday at 3pm: “In summary for tomorrow: ES is in a large, multi-week range with 7677 support and 7803 resistance. 7755 is a key zone inside this range. Today we swept 7677 and recovered. My lean is we head back up range with 7705-10, 7755, 7784 targets en route.” We ran nicely up these targets today.
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.
