NOTE: This is a resend of the newsletter for Monday September 21st, originally sent on Friday at 4pm, for those who did not receive.
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. 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 Wednesday after FOMC. ES went elevator down from ~7700 down to 7570’s. **The task for yesterday was therefore for bulls to put in a Failed Breakdown and short squeeze. I wrote in 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 last evening, and ripped. Targets (per Wednesday’s newsletter) were: “My general lean is ES can backtest 7643-45 (this was a big shelf we broke down after FOMC), dip, then recover. Targets are 7687, 7714, 7728 to fill the Sunday gap.” **This played out perfectly and we hit 7728+ this morning, filling Sunday’s gap. **
**All the recent action though was contained within a multi-week bull flag with 7789 resistance and 7628 support. **My lean was that we continue trekking up this flag, with retraces en route. I wrote in yesterday’s newsletter: “This returned ES back inside the big yellow bull flag shown in the chart just above here which has resistance at 7789 and support at 7628 (but this support has been traded through numerous times and may not be as reliable now. My lean is we keep filling this out to 7750, then 7787 flag resistance. Bulls want to defend the supports discussed above.”
Bulls managed to keep up the strength today. Can it continue into next week?
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.
