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. This was true for last weeks dip.
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. ES had been doing this all last week: Elevator down to the low 7700’s or lower, sweep a major low, trap bears, recover. Readers know this is what institutional accumulation looks like. From here, the job for bulls was to run it and we ripped Friday to 7800+. 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 dipped into today. As always, after a big rally the task for bulls is to defend some key levels on a retrace. 7845 would be key today which was the shelf of highs from Sept 21st to Sept 23rd we brokeout. I wrote yesterday at 4pm: “ES broke out 7845 in the process which was a shelf of highs from Sept 21 to 23. My general lean is we can defend on backtests then resume up to next slate of targets which are 7905, 7925, 7955.”
We spent today battling around 7845. Is this dip going to get bought?
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.
