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. Last Wednesday ES was tested with a massive 120 point dip after FOMC and bulls bought it the same way
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.
**We saw this play out last Wednesday after FOMC. ES went elevator down from ~7700 down to 7570’s. **The task for Thursday was therefore for bulls to put in a Failed Breakdown and short squeeze. I wrote in last Wednesday’s newsletter: “On August 3rd ES set a major low at 7611-16 (there is a shelf here) recoveries of this are actionable.” We recovered this last Wednesday evening, and ripped.
All the recent action though was contained within a multi-week bull flag with 7770 resistance and 7628 support. I was looking for a trip up this flag Monday, then a breakout. I wrote in my last Friday newsletter: “My lean is we keep filling this flag out to 7714, 7728, 7750, then 7770 flag resistance.”** This played out perfectly Monday, we got to work, and ran to 7770, then brokeout to 7830+**
The job for bulls today was to defend that 7770ish backtest zone. They couldn’t, and we dipped back into the flag going elevator down into this morning to 7707. However, all elevator down sells lead to a Failed Breakdown and squeeze. I wrote in yesterday’s newsletter: “7716 is below there and things get interesting here. At 6pm Sunday we set a big low at 7714-16 from which we rallied to current highs. The Failed Breakdown of this low is actionable.” We recovered 7716 this morning, and ripped back to 7770.
Was that dip all bears have? 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.
