SPY Falling Wedge Breakout

SPY Falling Wedge Breakout

SPY Falling Wedge Breakout

SPY has broken out of a small falling wedge after the minimum number of touches on its sides.

Last time the price was at the bottom of the 2-year+ rising wedge, we saw a second falling wedge form after the breakout from the first.  This looks very similar.

If you’re an E-waver, it’s the equivalent of a set of 4-5’s.

In other words, the bottoming has likely started, but the price will probably work itself lower in the course of completing this move.

ES Reaches Megaphone Bottom – Likely Setting Bear Trap (Updated 3x)

ES is at the Bottom of its Orange Megaphone

ES is at the Bottom of its Orange Megaphone

ES is at the bottom of its orange megaphone, a little through the bottom of its 2-year+ rising wedge.  This was the target area for a bottom if the potential triangle broke out before completing.

It will probably form a bottoming pattern here as it retests the bottom of the 2-year+ rising wedge.  If that consolidation should break out downwards, that would be a set-up to short.  Otherwise today’s move is a classic bear trap.

An upward breakout from a consolidation here, or a breakout back into the 2-year+ rising wedge, would be a set-up to go long to at least the orange megaphone VWAP at ES 1980/SPY 198.50.  The ultimate target for the long would be a new all-time high.

The most likely scenario is an inverse head and shoulders (green scenario on chart).  It will probably complete and break out upwards for a run to the orange megaphone top.  But if the right shoulder breaks out downwards, that would too be a set-up to short.

Update:  On my chart, SPY has not yet pierced the bottom of its 2-year+ rising wedge.  It would usually do that in this spot.  It’s not impossible that a fake breakout could turn into a genuine breakout, but in this spot it’s very unlikely, so you have to play this a little slowly.  I will be quick to respond to any complete set-up to go long here, however.

Update 2:  ES turned on a dime on its orange megaphone bottom.  Shouldn’t happen in a real move.

Moves to obvious targets (like the bottom of the 2-year+ rising wedge) often look very dramatic in isolation.  A move down like this one will look terrible on the indicators.  But that’s just because it’s obvious, once the move gets to a certain point, that it’s going to go the rest of the way, so nobody in their right mind buys before then, and market makers don’t want to eat the loss either, so they just jack the price down.

Update 3:  On ES this move looks like it could go as far as the 1930 area (in the process of bottoming) or even 1920-1921ish if it wants to get dramatic, so if you shorted the breakout through 1955, might want to be slow to take profits.

ES Premature Breakout Cancels Big Move

ES Breakout from Incomplete Triangle Means Inverse H&S is Likely

ES Breakout from Incomplete Triangle Means Inverse H&S is Likely

ES has broken out downwards from its potential triangle (navy blue on chart) without completing it. That usually means an inverse head and shoulders is forming, and it cancels the potential move to 1850.

The obvious target is the bottom of the 2-year+ rising wedge (or more likely, a little bit through it). ES has already tagged the wedge bottom, and will likely form some kind of small bottoming pattern down here that will cross the wedge bottom.

An upward breakout from a bottoming formation or a breakout back into the 2-year+ rising wedge (after a break through the bottom) would both be set-ups to go long.

SPY 2-Year+ Rising Wedge

SPY 2-Year+ Rising Wedge

An inverse head and shoulders here that breaks out upwards would target the top of the 2-year+ rising wedge and also the tops of the blue and orange megaphones on the first chart above.

Inverse head and shoulders formations can also break out downwards, although in this case the odds of that would be small.

ES Continues Work on Triangle

ES Triangle Continues to Form

ES Triangle Continues to Form

ES continues to work on a triangle (navy blue on chart above) in the right shoulder position of a head and shoulders on its 60-minute chart. Triangles in the right shoulder position of a head and shoulders usually mean the head and shoulders will break out downwards.

If the triangle breaks out before completing, it would usually be morphing into a mini head and shoulders or inverse head and shoulders.

The ES navy-blue triangle is forming at VWAP of a 4-month megaphone (red on chart below).

ES Triangle is Forming at VWAP of Red Megaphone

ES Triangle is Forming at VWAP of Red Megaphone

A downward breakout from the triangle would be a breakout through VWAP, with a target of the red megaphone bottom at roughly 1850.

Then it would be back up to the red megaphone VWAP and a retest of the bottom of the ES and SPY 2-year+ rising wedge. A price reversal there would put a major head and shoulders on the chart.

SPY Put-Call Ratio Falls While CPCI Soars

SPY Put-Call Ratio Falls Almost to 20 dma

SPY Put-Call Ratio Falls Almost to 20 dma

The SPY put-call ratio fell today almost to its 20 dma, and so did the CPCE.  The CPCE fell from a spike through its top Bollinger Band on Monday.

But the CPCI spiked from its lower Bollinger Band up through the upper band today. This is surprising heading into the first day of the new quarter.

The CPCI Spiked Today

Meanwhile, the CPCI Spiked from its Lower Bollinger Band Through its Upper Band

SPY put volume rose by 7% today on a big rise in open interest. SPY call volume rose by 47%.

Together, the ratios are bearish. The only question is whether the bearishness gets blown in one swoon to the bottom of the SPY 2-year+ rising wedge (possibly as the head of an inverse head and shoulders) or whether the selling is sustained and disciplined enough to complete the ES triangle and then break down. That would be a must-short for a potential drop to 1850 or a bit below, and would be another step in setting up a potential major top.

You often see these CPCI surges a little early before the right shoulder of an important head and shoulders turns.  The potential triangle on the ES chart is in the right shoulder position of a potential head and shoulders.

ES Potential Triangle Could Morph Into Other Formations

ES Potential Triangle (Navy Blue) Could Morph into H&S or Inverse H&S

ES Potential Triangle (Navy Blue) Could Morph into H&S or Inverse H&S

So we continue to have a consolidation between ES 1955 and ES 1980, where no consolidation was needed. ES was all set up to run to the top of its orange megaphone and make a new high, killing the head and shoulders on the chart.

It was also legal for a downward breakout from the orange megaphone for a plunge to the bottom of a larger megaphone at roughly 1850.

But instead it seems to be forming a triangle here (navy blue on chart).

If the triangle actually completes, it will likely break out downwards. Triangles in a head and shoulders right shoulder position are usually bearish.

But if the triangle breaks out before completing, it’s probably forming either an inverse head and shoulders (if the premature breakout is downwards) or a head and shoulders (if the premature breakout is upwards).

I’d short any breakout through ES 1955/SPY 196 because of the potential for a melt-down to ES 1850 or even a bit lower. And I’d go long on any breakout through ES 1980/SPY 198.50 because of the potential for a melt-up to a new all-time high.

But any breakout from an incomplete triangle would have high odds of running out of steam well below the target.

For a premature breakout upwards, there could be trouble in the ES 1988-1991.25 area. For a premature breakout downwards, the bottom of the 2-year+ rising wedge in the ES 1940ish/SPY 195ish area is an obvious major hurtle to get through.

SPY Put-Call Ratio (Updated)

The SPY put-call ratio as of yesterday’s close was 3.08.

That’s very bullish, but it was not yet at its top Bollinger Band and its not opex week, so it could get more bullish still.

The CPCI was at 0.66, at its bottom Bollinger Band.  The last time that happened was August 11.

This makes it likely that either the potential triangle will break out upwards, or that it will morph into a megaphone or even an inverse H&S that breaks out upwards.