ES New Price Channel Could Lead To Melt-Down Channel

ES Would Usually Retrace into the Purple Price Channel Here and Then Continue Down into a Steeper Channel

ES Would Usually Retrace into the Purple Price Channel Here and Then Continue Down into a Steeper Channel

ES broke out of its potential head and shoulders formation at the Sunday open (orange neckline) and there was immediate buying into the selling.  Since that, it’s just been sitting there like an egg.

But ES has a new price channel on its chart (purple) with a downward test breakout.  It should retrace into the H&S and the purple price channel to the VWAP of a megaphone down there (silver) at the 1987 area.

ES should reverse there for a downward breakout from the purple price channel into a steeper channel (pink on chart) and a likely melt-down to at least the bottom of its 2-year+ rising wedge and probably 1925.

If it gets through 1925 it’s probably going for the bottom of a larger megaphone at roughly 1850.  That’s also the VWAP area of an even larger megaphone that’s been forming for almost a year.

From there it would retest the bottom of the 2-year+ rising wedge, putting in the right shoulder of a larger head and shoulders.

It it gets through that H&S neckline it’s going for 1650 or lower.

SPY Long-Term Topping Scenarios

SPY Long-Term Topping Scenarios

Bullish Scenario: If ES breaks out the top of the new purple price channel, it’s probably forming a bottom before a big move up.

ES Bullish Scenario

ES Bullish Scenario – Note Upward Pierce of Purple Price Channel on Next Move

Note that the CPCI moved down to 0.92 on Friday, significantly below its 20 dma. The big money doesn’t look too scared.

Melt-Up Blown for Now – ES Trying for Head and Shoulders (Updated)

ES is Now Trying Another Head and Shoulders

ES is Now Trying Another Head and Shoulders

ES is now trying to form another head and shoulders. The way the chart is right now, it could succeed.

But watch out for fake breakouts.  If the right shoulder starts to megaphone, the head and shoulders would usually break out upwards.  That would put a new megaphone on the chart, with new required retraces.  It would likely mean a new high but also a lot more sideways.

In any case, the ES and SPY price channel melt-up set-up is blown.  Third in a row.  Draghi had better start buying something quick.

Update:  At 10:23 a.m. Pacific Time, ES appears to be giving up on the latest small potential head and shoulders, and just plunging to its silver megaphone bottom.  That would put another fake breakout on the larger head and shoulders.

But there are megaphones within megaphones within megaphones on the chart now, so these moves can get very complicated all while doing nothing but drifting sideways.

Head and Shoulders with Undecided Right Shoulder

Head and Shoulders with Undecided Right Shoulder

Potential Short-Term Short Set-Up (Updated 2x)

If ES fails to reverse on the bottom of the potential price channel, it’s a short set-up to various megaphone bottoms at roughly ES 1965.

Then back up to the megaphone VWAPs a little below 2000 for a decision on longer-term direction.

Update: Okay, if that 7 a.m. Pacific Time reversal holds, the price channel set-up is close enough (though odds are higher than normal that the set-up will fizzle and pay only a small profit). If we start seeing a new megaphone form down here, it could bore us until the FOMC announcement, and the breakout could be in either direction.

Update 2: Looking at the chart more closely, if ES and SPY break out past today’s low (watch out for a fake breakout because a megaphone may form), 1965 is the most likely target (could go a bit further, even as far as 1950). But although the retrace after could go as far as 2000 or even another new all-time high, it wouldn’t have to. The only requirement would be a retest of ES 1988/SPY 199ish.

Potential ES and SPY Melt-Up Set-Up

ES has High Odds of Putting in My Favorite Melt-Up Set-Up Here

ES has High Odds of Putting in My Favorite Melt-Up Set-Up Here

ES put in a small rising wedge yesterday (orange on chart), and it looks like it now has a good chance of putting in a standard deep rising wedge retrace.

Right now the little rising wedge’s VWAP is right at the bottom of a potential price channel (navy blue) on the chart.  The bottom is also a short-term trend line with three touches on it.

In this context, if ES reverses at the bottom of that channel, it’s putting in my favorite melt-up set-up.

You could get long at the potential channel bottom with a tight stop, or get long on the channel breakout.

Two of these set-ups have fizzled over the past couple of months, forming rising wedges after breakout without much price gain and then heading into a correction.  But even when these set-ups fizzle, they are easy to get out of without getting hurt, and you always make at least a little money.  Usually you make a lot of money fast.

Oil Long-Term Megaphones

Oil Hit a H&S Target at the Low of its Navy Blue Megaphone, and is Now Back at the Megaphone VWAP

Oil is Back at VWAP of its Navy Blue Megaphone

Oil is back at VWAP of its navy blue megaphone.  It could form a little top across VWAP here and go for another plunge to the bottom or even for a breakout through the bottom, or it could go for the megaphone top. About 2/3 of the time it would go for the megaphone top in this spot, and then fall back to at least VWAP again, and most likely the megaphone bottom one last time.

Just for laughs, here’s my longer-term interpretation of oil as a series of megaphones and interior megaphones with a VWAP at roughly 95.  The navy blue megaphone in the top chart is most likely a bottoming formation across that 95 VWAP for an eventual breakout upwards from this whole mess.

Oil Long-Term Megaphone and Internal Megaphones

Oil Long-Term Megaphone and Interior Megaphones

One thing to keep in mind if oil goes for its navy megaphone top here is the pink megaphone on the long-term chart. It formed across 88.25, which was the former VWAP of all of the longer-term megaphones.

Usually oil would get down to that pink megaphone VWAP before a longer-term move upwards.

ES Short-Term Rising Wedge

ES Formed a Short-Term Rising Wedge (Orange) on the Approach to its Purple Megaphone VWAP

ES Formed a Short-Term Rising Wedge (Orange) on the Approach to its Purple Megaphone VWAP

ES formed a short-term rising wedge (orange on chart) heading into its purple megaphone VWAP. It was at the top of the rising wedge in the final minutes of the trading day.

It could just keep going, but usually you’d see either a deep retrace here (to near the wedge bottom) or some kind of consolidation across the purple megaphone VWAP.  That consolidation could break out in either direction, so you can’t get complacent, but usually in a context like this one it would break out upwards.

It would be a dream come true if we saw the deep retrace and it formed a new price channel.  That would be a potential melt-up set-up.

An Upward Breakout From This Megaphone Would End This Correction

An Upward Breakout from the New Orange Megaphone would be the End of this Correction

An Upward Breakout from the New Orange Megaphone would be the End of this Correction

ES has proceeded to megaphone across its bottoming/continuation megaphone VWAP.

An upward breakout from this megaphone would mean an end to this correction.

ES would likely put in some more sideways movement, but there would be a higher high within the sideways move. The SPX would get to that higher high with an upward breakout from the head and shoulders on the chart, which means that the move up should be powerful.

ES Back at VWAP Decision Point

ES has Retraced to its Bottoming or Continuation Megaphone VWAP and May Be Forming a Megaphone Across It

ES has Retraced to its Bottoming or Continuation Megaphone VWAP and May Be Forming a Megaphone Across It

ES has retraced overnight to the VWAP of its bottoming or continuation megaphone. It appears to be trying to form a megaphone across it. If the consolidation succeeds, ES would usually break out upwards from it for an upward breakout from the bottoming megaphone and a trip to a new all-time high and probably roughly 2030.

But ES would break through VWAP about 2/3 of the time for another trip to the megaphone bottom. Then it will need another trip to at least VWAP, where it will decide which way to go.  That time, the decision will probably stick.

That means the pink or green scenarios are the most likely.