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.
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—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.
This is what we saw Thursday. ES rapidly went elevator down 80+ points to 7782 by 115PM. In doing so, ES flushed a huge 46 point low ES set at 630am Thursday. We recovered it about an hour later (Failed Breakdown). We ripped to 7845+ into today. I called for this in yesterday’s newsletter.
I wrote in last Thursday’s newsletter: “My general lean is ES can defend/recover 7811/7803 then resume up to 7845, 7858, then 7872. 7872 is a magnet and backtests the shelf we broke down on Wednesday that triggered the sell we saw yesterday. This is a magnet.” This perfectly and we ripped to 7884+ into yesterday.
After this rip, ES has spent the last few days chopping in a big range mostly 7803 to 7884. The task for bulls next was to fill out, then breakout. I wrote in yesterday’s newsletter: “Now, ES is mostly rangebound with 7884 resistance and 7803 support. My general lean is always to defer to the trend: That ES can fill this range out, then breakout to 7903, 7918, then 7961. In a strong bull case, ES will hold 7853.” We spent today chopping around 7853.
We are coiled tight. Will we trend soon? 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.
