Is SPX Coiling For Another Breakout? August 10th Plan

NOTE: This is a resend of the newsletter for Monday August 10th, originally sent Friday at 4pm, for those who did not receive.

As readers know, the theme for the past several months has been buy dips. The dips vary in size, speed, duration, structure, but they all resolve the same: They get bought. We saw this last Wednesday after FOMC. This was a particularly large dip (over 100 points in a little over an hour), and as a result it would mean the dip buy would be particularly large. It was and we’ve ripped 400+ points since then. We were on board for the entire thing.

How do bulls buy dips in ES? As I frequently discuss all major rallies in ES start on Failed Breakdowns, because Failed Breakdowns are how institutions accumulate. Institutions accumulate when ES flushes hard and goes elevator down - losing, and then recovering a big previously set low. In doing so institutions are able to trap shorts that are chasing, use them as liquidity, then price rips the other way when the low recovers. Usually, this process correlated with an external headline shock as institutions love to use headlines for liquidity to trap shorts (or in rare cases, they/insiders are aware of headlines in advance).

We saw this exact dynamic after FOMC last Wednesday. ES went elevator down down to 7324 from 7470’s selling 100+ points in short order. This was a rapid sell that unfolded in an hour or so - exactly what we want to see. In doing so, ES lost the major June 11th low at 7325 by 1 point. We recovered 7325 by 4:35PM Wednesday, and began a vicious rip Wednesday evening that ultimately lasted into yesterday.

In doing so, ES also managed to recover 7418 which had been a big shelf of lows from Thursday into Tuesday last week. This was a powerful combination and the result would be a parabolic move up. The task this week was for bulls to keep it going. I wrote last Friday at 3:30PM: “My general lean is that ES can defend 7549 or 7517 lowest on backtests. From there, we continue up to 7627, 7639, 7649, then 7683+.” Monday we flushed 7549 quickly, recovered, and ripped to 7820 this week.

After a rally like this, ES for the last couple days began the process of digesting the move, and building a range which was mostly 7723 to 7800 with 7751 being a big pivot in the middle. I wrote yesterday at 4pm: “After a 3 day lockout rally ES finally began a dip today. Bulls must recover 7751 to see a rally back to 7767, 7783, 7800.”

We recovered 7751 and ripped today.

Is ES coiling for another breakout? In today’s newsletter I’ll expand on this, I’ll go over today’s Failed Breakdowns (these are key to know), and I’ll discuss the actionable plan for tomorrow.