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 ES was tested with a massive dip and bulls bought it the same way
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.
**We saw this play out last Wednesday after FOMC. ES went elevator down from ~7700 down to 7570’s. **The task for Thursday was therefore for bulls to put in a Failed Breakdown and short squeeze. I wrote in last Wednesday’s newsletter: “On August 3rd ES set a major low at 7611-16 (there is a shelf here) recoveries of this are actionable.” We recovered this Wednesday evening, and ripped.
All the recent action though was contained within a multi-week bull flag with 7770 resistance and 7628 support. I was looking for a trip up this flag Monday, then a breakout. I wrote in my Friday newsletter: “My lean is we keep filling this flag out to 7714, 7728, 7750, then 7770 flag resistance.”** This played out perfectly Monday, we got to work, and ran to 7770, then brokeout.**
**The job for bulls yesterday and today was to defend that 7770 backtest. I wrote in Monday’s newsletter: “**My general lean is always to defer to the trend. We can continue up to 7831 (this was the highs from Sept 3rd/4th). Perhaps dip there, then onto 7867, then 7905.” This played out perfectly and we got to 7831 and beyond Tuesday morning.
Today, we then backtested that 7770 bull flag.
Will bulls buy the dip? 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.
