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 and ES fails to sell linearly lowr. We saw bulls attempt this on Friday. ES sold violently Friday down to 7558. Late day, bulls stepped in, and bought it for a ~135 point rip into yesterday. Then today? ES sold violently again to 7548, and ripped again 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. A elevator down sell refers to a multi-hour window where every support fails. After this ES piuts in a Failed Breakdown—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. Typically, these elevator down sells are caused by ES losing a big previously established support shelf.
**This is what we saw Thursday/Friday. On Friday ES sold 135 points as written above. **After this, bulls need a Failed Breakdown to rip back up the levels. I wrote on Friday at 3pm: “Recovery of 7577 is first of interest now and this was the big low from September 16th.” We saw this Friday and ripped. I also wrote in Friday’s newsletter: “My general lean is ES can try to backtest 7665/7677. Recoveries of 7577 and then 7627 sees us move to 7665.” **This played out nearly perfectly yesterday getting to 7665+ before dipping and going elevator down to 7540’s last evening. **
**The task for bulls today was to - as usual - ignite another Failed Breakdown and rally again. To do so, it would need a Failed Breakdown. **I wrote yesterday at 2:50PM: “The Failed Breakdown of the Friday 7558 low is an obvious, high quality long under there.” We triggered this early this morning and ripped to 7620+.
Will today’s bounce get sold? 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.
