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. We saw this last week with ES selling 160 points to 7649 low of day last Friday. Bulls bought it and we rallied this week +170 points, before getting another pullback today.
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 Friday into Sunday. As readers recall, ES has spent much of the last several weeks in a large morphing range mostly 7677 to 7803. Last Friday we sold to 7649 below this range. Recall that 7677 has been a massive shelf since September. We set lows here on September 18th, October 1st, October 16th, and last Thursday. The Failed Breakdown of this would be actionable. I wrote last Friday at 3pm: “Generally the bull case is very simply that ES can recover 7677 and run up the range.”
At the open Sunday we recovered 7677 and popped. This week I was looking for ES to run up range towards 7803 (recall whenever ES traps a range support, it often runs to range resistance) writing also last Friday at 3pm: “In summary for tomorrow: ES is in a large, multi-week range with 7677 support and 7803 resistance. My lean is we head back up range with 7705-10, 7755, 7784 targets en route.” **We saw exactly this during this week: **We rallied to 7803 range resistance, trapped above it, then headed back down to range support and lost it today.
This loss was caused by a rare bear case trigger. I wrote yesterday at 3pm: “Bear case tomorrow: No bear case at all until below 7703.” We lost that last evening, lost 7677 range support, and down we went.
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.
