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. Ths was true for the massive 100+ point dip we saw last Thursday.
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 Thursday.** We went elevator down from 7770’s to 7681-74 by 10am. In doing so, ES lost a big shelf of lows at 7707 comprising last Wednesday’s low of day and the Thursday priors low of day. Again, this setup another Failed Breakdown. I wrote Wednesday in the newsletter: “Nothing below there until the Failed Breakdown of last Thursday’s 7707 daily low.”**
We recovered 7707, and ripped. From here, the job for bulls was to run it and this week, I was looking for more. The question I asked in Monday’s newsletter was: “Are All Time Highs Coming For SPX?”. My lean was yes, stating: “My general lean is -as always - to defer to the trend. This means as long as 7768/82 continues to defend, we continue up to 7845, react, 7867, react, then push to all time highs.” We pushed to ~7895 Tuesday to test the prior all time high roughly.
We then began a gradual pullback this week into today, hitting 7803 overnight. As readers know, after a large rally price needs to consolidate, digest, backtest, and build structure. As it is doing this, our task is to trade the Failed Breakdowns when they emerge after elevator down sells as price builds a consolidation. The typical consolidation sees dozens of Failed Breakdowns. We saw this today and a Failed Breakdown we would be tracking would be of 7816-20. I wrote in yesterday’s newsletter: “Why 7816-7820? On Monday at 4pm we set a big low at 7820 and ripped to the current highs. Then this morning, we set the low of day at 7816 and rallied. There is a shelf here. Wait for 7811 to hold and recover 7816-20 for a Failed Breakdown here.” We recovered and popped to 7845-50 this morning.
Then from there? Elevator Down again to 7782 low of day, we recovered then that big 7803 low by 2:15PM (Failed breakdown) and popped again.
All this action represents consolidation as ES digests the recent leg up. Another move is coming, but what way? 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.
