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.
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 early this morning. Yesterday/early this morning, ES went elevator down from 7780 to 7716 by 2am. I wrote in yesterday’s 3pm newsletter: “7725 is first support down of interest below there. Watch for Failed Breakdowns here - we set a nice low there around 1130AM Thursday from which we rallied to the current highs and we also set a big low there at around 10:50AM today.” We saw this around 2am - it played out perfectly - we recovered 7725, and ripped to 7760’s. This was a classic Failed Breakdown.
Ultimately though, ES had spent most the last few days magnetized to 7758 which was resistance of a multi-week bull flag. I wrote in yesterday’s newsletter: “Bigger picture, the basic big picture structure remains centered around the big yellow bull flag in the above chart. Resistance is roughly 7758 now and this has and will continue to be a big pivot.” **ES made it up there today, then rejected down back to 7716 where we spent the rest of the session, ultimately defending 7716 but remaining below 7758 into the close. **
Will today’s dip setup then next leg higher? 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.
