SPY put volume was basically unchanged on a solid increase in open interest. It was an increase in SPY call volume that brought the ratio down.
ES is continuing down after the close to the larger head and shoulders neckline at 1959. We’ll probably see a fake breakout through that neckline too, with a target of ES 1952.50/SPY 195.75.
The blue right shoulder megaphone makes the green scenario a strong favorite. The target would be a new all-time high, which would be the top before a series of plunges and sharp retraces for at least a 10% correction.
There’s a little head and shoulders at the top of what would look to most traders like the right shoulder of a larger head and shoulders. To me, it’s a fake head and shoulders with a megaphone right shoulder that will lead to a new all-time high.
But in this situation, you’d almost always see a fake head and shoulders breakout to put a new low in the blue right shoulder megaphone in the chart. The target for that new low is ES 1952.50/SPY 195.75.
After that ES must retrace to at least the 1971 area (SPY 197.60). Most likely ES and SPY will break out upwards there in an explosive move to the final new all-time high before a correction of at least 10%.
If ES breaks out downwards through 1952.50, this scenario changes. The next target would be roughly ES 1938/SPY 194.30, then a retrace to 1971.
ES found some sellers at its orange megaphone VWAP. But the selling occurred in the context of a megaphone (small blue-gray megaphone on chart).
It’s putting in a lower low on this selling as I type, but it might be forming a megaphone bottom for the dip.
No matter what ES now has a mandatory retrace to the 1974 VWAP of the blue gray megaphone before it can go down very much further.
There are also new complications on the chart if it passes this morning’s high. There would be a retrace to at least the blue-gray megaphone VWAP, and possibly more than one.
In other words, the SPX is very bogged down.
The green scenario is a slight favorite.
ES retraced overnight to the VWAP of its bright blue bottoming megaphone. That means it’s legal for an upward breakout through the blue megaphone top and orange topping megaphone VWAP at roughly ES 1978.75/SPY 198.37. An upwards breakout should take ES to a new all-time high, where we should see a small topping formation before a significant correction.
There’s also a chance ES will reverse at that orange megaphone VWAP. If it does it could just head down to retest ES 1952.50/SPY 195.75 and put a more conventional bottom on the blue megaphone before reversing to head up to a new all-time high. But a reversal at the orange megaphone VWAP would also make ES legal for a downward breakout from the orange topping megaphone. Continue reading
SPY put volume today was almost unchanged from last Wednesday. The ratio rose on a drop in call volume.
Now that the selling from the CME margin increase is over, the CPCI fell sharply. It’s now at its 20 dma at 1.12.
ES could dip here to 1967.50 (SPY 197.25) or as far as 1965 (SPY 197.00) and be legal for an upward breakout from a bottoming megaphone (purple scenario).
But this megaphone is one of those oddly shaped ones that looks as if it wouldn’t mind moving sideways a bit longer. Plus the low is just kind of hanging there between two critical VWAP levels at ES 1967.50 and 1952.50.
It could all be an artifact of the CME raising margin requirements last Thursday, but I wouldn’t be surprised to see this megaphone redraw itself with another wave down to 1952.50, then up to the 1978.75 area, then down to roughly 1967.50 again, then up up and away to a final new all-time high before a significant correction.
It’s probably 60-40 in favor of the green scenario. However, there’s now no question that a megaphone is forming, and that greatly increases the odds of the new all-time high. See today’s earlier post for details.
If ES passes the overnight/morning high, the green scenario on the chart above is an overwhelming favorite. If ES can’t take out that high, and instead heads down to 1938, I’ll be quickly posting a simpler topping chart.
But it is highly likely that a loose megaphone is forming at the potential right shoulder area of a head-and-shoulders head on a larger head and shoulders.
When you see a megaphone forming in the right shoulder area of an H&S, the price is almost always going to go to a higher high. That higher high would be the real head of the larger head and shoulders, and would most likely be the top before a significant correction.
Update: If ES is going to fail to take out the overnight/morning high, it should happen at roughly ES 1971-1971.50/SPY 197.60-197.65. But you have to be careful, because a turn there could just be a double dip to retest the megaphone bottom.
A turn there could also stop at a retest of the VWAP of an interior megaphone at roughly ES 1965/SPY 197. In other words, there’s a good chance the market will keep this tricky for a bit.