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. Since mid this week, bulls have been trying to buy it as always, constructing a shelf of lows in the 7670s.
**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 last Monday one week ago (August 24th). I wrote last 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.” 7659 was the Thursday August 20th low of day. We swept it slightly last Monday (Failed Breakdown), recovered, then held it all week, setting the stage for upside taking us to 7780s last week high and then we dipped into today. All rallies start with a Failed Breakdown like this.
Ultimately though, ES has been rangebound for the last week with 7659 support which is a major shelf of lows and resistance largely at 7744. Can bulls defend this and rally up to range resistance, then breakout?
** **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.
