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. Today, ES was tested with its next large dip, and it was a 100+ pointer.
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.
If that is how bulls buy dips though, what causes the sells that precede them? A major sell in ES occurs when ES loses a major shelf of previously tested, well defended lows. We saw this today. I wrote in yesterday newsletter: “Bear case tomorrow: We likely dip below 7838.” This 7835-38 region was the Monday/Tuesday lows of day (forming a shelf). We lost it, and sold hard to 7743 low of day.
After a dip like this, ES would need to put in a Failed Breakdown to rally. In this case, the recovery of the the major October 5th low at 7765 would start it, but ES would need to recover 7835 (which is the shelf of lows that cracked on Wednesday) to sustain any rip. I wrote in yesterday’s newsletter: “Nothing below until 7765. There was a huge shelf of lows here from midnight Monday until 830AM Monday but the lows are staggered here in a 5 point rang.” We did not get this trigger yet today.
Can ES rally to backtest 7835? 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.
