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. Last Wednesday, we were tested with a large 135 point dip, selling from 7840’s to 7707. Bulls bought it.
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 last Wednesday. I wrote in Wednesday’s newsletter: “7716 is below there and things get interesting here. At 6pm Sunday we set a big low at 7714-16 from which we rallied to current highs. The Failed Breakdown of this low is actionable.” ES sold 135 points Wednesday, **we recovered 7716 Thursday morning, and ripped all day. This was a classic Failed Breakdown. **
Friday, the job was for bulls to run it. I wrote in Thursday’s newsletter: “My general lean is ES can continue up to 7802, 7811, 7822. Big spot here. Dip likely, then we rip to 7867+” We ran to 7815 Friday then dipped this morning.
**For weeks though, ES has been stuck inside a large bull flag with 7758 or so resistance. Today, the task for bulls was to defend this on dips/backtests. **I wrote in Friday’s newsletter: “My general lean is ES can defend this [7758] zone (or quick traps below per the above instructions) then next targets are 7822, dip/react, then breakout to 7867, then 7887, then 7904. Last stop there before a trip to All Time Highs to 7942+.”
Bulls managed to defend it today and is coiling tighter. A breakout is close. Can the run continue? 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.
