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 and ES fails to **sell linearly lower. We saw this as the mid-term results rolled in Tuesday. ES sold 140 points into 7490 at 10pm Tuesday going *** elevator down *and then we ripped 245+ points into Wednesday morning.
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. A elevator down sell refers to a multi-hour window where every support fails. After this ES puts in a Failed Breakdown—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. Typically, these elevator down sells are caused by ES losing a big previously established support shelf.
**This is what we saw Tuesday evening as discussed above. **ES sold 140 points to 7490 into 10pm as midterm results rolled in. In doing so, ES lost the July 31st 7495 low. By 10:15PM that low recovered for a Failed Breakdown and we went vertical +200. This setup was given to readers when I wrote: “Next zone of interest is 7495. On July 31st we set a massive low here. The Failed Breakdown of this low is actionable.”
I was looking for more upside into yesterday, stating at the close Tuesday: “My general lean is we see 7636, react, 7657, then see 7698-7703. Above there we should rip hard to 7739, 7755+.” We ripped to 7739 Wednesday morning and this played out to perfection. ES was unable to recover that 7739 sustainably though, and today we went violently elevator down again to take out Tuesday’s 7490 low.
For those who like the short side, there was a Bear Case trigger around 950AM this morning. I wrote yesterday: “Bear case tomorrow: Possible dip back to the lows below 7606.” Down we went.
The recovery of the 7490 low would constitute a Failed Breakdown. I wrote yesterday in the newsletter: “Finally, the Failed Breakdown of last nights 7490 low is the highest quality entry.” To start back up, bulls would need to recover it. Can they?
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.
