Ultra-Low Volatility In SPX. Calm Before The Storm? August 13th Plan

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 Wednesday July 29th. 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 that Wednesday, and began a vicious rip that ultimately lasted into this weeks highs.

After a rally like this, ES needs to digest the move. This usually occurs by price building out a sideways consolidation and this is what we spent the last few days doing.

ES for the last few days began the process of digesting the move, and building a range which was mostly 7723 to 7800-7794. This was a flag. Today I was looking for ES to fill this range out more. I wrote yesterday at 3pm: “At 7744 at 1030AM Friday ES set a significant low from which we rallied to the current highs. A Failed Breakdown of this low is very actionable.” Yesterday afternoon, ES flushed 7744 down to 7738, recovered, and we ran to 7794 flag resistance exact before dipping.

Volatility is incredibly low now in ES as we continue to coil tight. Is a breakout close? 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.