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. Lastweek - as always - bulls tried to buy it.
**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 Wednesday. Early Wednesday morning ES lost the Tuesday 7622 low of day by 4 points. We then recovered (Failed Breakdown), and ripped. This rip though ultimately just took us back into the 7659-7733 range we had spent much of the last week in.
The task for bulls last Thursday was then to break this range (which was a bull flag, out). **My lean was they could. **I wrote Wednesday towards the close: “This rip took us back into the 7659-7733 range we’ve spent much the last couple weeks in. My general lean is we can continue filling this range to the upside with 7704, 7714, 7733 targets. Then we can breakout to 7797+”. This played out well Thursday, and ES broke out and ran to 7760+ Friday.
**For today the task for bulls was to defend this bull flag on any backtest. **Since flag resistances decline, that resistance declined from 7733 yesterday to 695 today. I wrote on Friday at the close: “My general lean is ES can defend 7695/7714 and resume up to 7745, 7764, 7797+.” We spent much of today testing/trapping around 7695.
All this action today and last week has created a tight coil. ES is ready to break, but what way? 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.
