Note: This is a resend of the newsletter for tomorrow that was just sent. The first contained some errors, use this resent version.
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. After a 400+ point rally in early August (which we were onboard for) ES began its first slow, controlled dip over the last couple weeks. It has yet to be sustainably bought.
**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 know what causes rallies then in ES, but what causes sells, and specifically, what caused the sell we saw last week? ** As readers know, ES sells off in one circumstance only. When a well-tested, previously defended support shelf fails. Thursday/Friday August 13 and 14, ES built a support shelf at 7797 and we lost it the Monday after, down we went. **This puts bears in control until the shelf recovers. **
**This does not mean we won’t see rips though via Failed Breakdowns. Bulls have tried all week. **
We saw one on Monday. I wrote Monday at 3pm: “ES spent since Thursday basing out at 7659 or so. My general lean is ES can hold this (or quick trap below) then recoveries of 7680 target 7698, 7716-20, 7746, then 7794-97. Sell< 7659.” 7659 was the Thursday low of day. We swept it slightly Monday (Failed Breakdown), recovered, then held it all then ripped to 7698+ into today.
**Nvidia earnings are incoming. Can bulls recover on them? **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.
