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. This is despite the fact after every dip, we get the standard “world is ending” calls. We saw this Wednesday July 29th after FOMC and it started this macro leg up. 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 dynamic today. Last Thursday and Friday ES began to digest the recent 400+ point rally and build a support shelf at 7797. On Tuesday, ES collapsed below that shelf and we sold hard to ~7700 last evening, going elevator down. This means we can prep for the Failed Breakdown. In this case, it would be on the recovery of 7716 which was a big shelf of lows all day yesterday. I wrote yesterday at 4pm: “First support down is 7716. We set a nice shelf of lows there today. At 4am, we set a low there and bounced 20 points. At 11am, we also set a low around there and bounced again. The Failed Breakdown of this shelf is actionable.”
We got this at 835AM today. Where would this rip target? Typically, the backtest of the shelf whose failure *caused the breakdown. *This would be 7797. I wrote yesterday at 4pm: “My general lean is ES can attempt a backtest of this zone, but bulls need to recover it to regain any control.” We only got to 7760’s so far today.
Is the dip over? 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.
