ES End of Day

ES Inverse H&S has a Right Shoulder Megaphone that Needs a Retrace to VWAP

ES Inverse H&S has a Right Shoulder Megaphone that Needs a Retrace to VWAP

ES put in a breakout from an inverse H&S at the close. But there were several problems with the breakout.

The first was that, on the biggest volume bar of the day, there was virtually no price movement, meaning the inverse H&S breakout was getting heavily sold into. It isn’t little guys who sell into inverse H&S breakouts.

The second problem was that the right shoulder formed a megaphone (red on chart). That right shoulder megaphone isn’t legal for an upwards breakout–it would need a retrace to VWAP first to be legal.

ES also had a potential price channel melt-up set-up on the chart near the close, but it didn’t break out of that properly either.  ES blew a number of Sornette melt-up set-ups today as well as the breakouts got sold into each time.

The bright blue megaphone on the chart would usually see a retrace to VWAP at 1960 before a breakout downwards.  My guess is that one way or another ES will work its way back to 1960 before taking out the low of Monday, August 24th, but I can’t be sure.  It could just form a topping pattern at the top of the red right shoulder megaphone and then head down.

The strongest set-up on the chart remains the August 24th NYMO close below -100, which gives strong odds of the market taking out the August 24th low before it takes out the August 27th high.  The exact way ES makes it to that lower low will tell us a lot about how much of a lower low it is likely to put in and whether it’s likely to put in a new all-time high after.

Potential Redo of Neely Wedge

Potential Mini Neely Rising Wedge Redo

Potential Mini Neely Rising Wedge Redo (Red)

ES wants to form a triangle here, but with the pressure of nobody wanting to be short going into the holiday weekend, it could break the potential triangle top (navy blue) to put in a mini version of the weird Neely rising wedge off the August 24 low.

The Neely wedge target would be 1960.  A Neely wedge would put in a retrace to the megaphone VWAP there and free ES for a breakout downwards from that formation.

You could go long on a breakout through the potential triangle top. The set-up to get short again would be the breakout back into the wedge after the 5th wave, which always breaks the wedge top. Remember that the 4th wave before that 5th wave would be very small.

ES Overnight (Updated 2x)

Triangle vs Sornette Melt-Up

Triangle vs Sornette Melt-Up

ES is trying to put in a Sornette melt-up set-up here (purple scenario).

If one of these set-ups is going to fail, it usually does it in the second bobble of the breakout attempt.

If it fails, ES is likely putting in a triangle continuation pattern.  If it succeeds, a larger triangle could be forming but I can’t remember a single NYMO lower low set-up that resulted in such a triangle.

Update:  I would not ride out a breakout into a Sornette melt-up.  If we were to get that breakout, I would be riding the melt-up, then re-shorting to the NYMO lower low.

If the Sornette set-up fails, I personally will be staying short.

Update 2:  Note that ES put in a rising megaphone top just before and during the open.  That’s a bearish sign of bull overreach.

ES Rising Megaphone Top (Gray)

ES Rising Megaphone Top (Gray)

Could be forming a continuation triangle here, or this could be a connecting wave before another plunge.

Trading Notes (Updated)

Glenn Neely (who runs trading services over at neowave.com) put out a public email today saying that the market would break 1700 before the end of the year and that the next 4-5 weeks the market would be in a down trend. His exact target is the October 9, 2013 low. And that could just be the low for Part 1 of a bear market.

He also said that he was virtually certain we’ve seen the high for 2015.

For me, if the SPX breaks 1700 it means a drop of more than 5% from the bottoms of the SPY and ES big flat-bottomed rising-top megaphones/H&S formations on the daily. That means a rally through those bottoms/necklines would no longer trigger a target of a new all-time high.

Instead we’ll likely get a screaming rally from somewhere below 1700 and then the Big One down to the longer-term correction targets (SPY 125ish). That’s where SPY and ES decide whether to put in Part 3 of their Sornette bubbles–the biggest, fastest part.

It’s probably worth mentioning that I’ve never received an email like this from Neely before. He’s not been calling for a crash every 100 points since the 2009 low.

Also, he’s not just spouting targets. He lays out a case of a dozen+ rules from his system for these calls.

Update: I’m still reading Neely’s email. He left himself an out, but not much of one. He said that if the cash S&P fails to take out August’s low in September, it could make a higher high before its big move down.

However, we have the NYMO set-up (the NYMO close below -100 on Monday, August 24) giving us extremely high odds of taking out the August low in September.

ES Pre-Open Price Channel is in Critical Decision Wave

Navy Blue Price Channel is in Critical Decision Wave for Starting a Bottom vs Setting Up a Meltdown

Navy Blue Price Channel is in Critical Decision Wave for Starting a Bottom vs Setting Up a Meltdown

ES has confirmed a pre-open price channel (navy blue on chart) that is in it’s critical decision wave between starting a bottom (purple scenario) and setting up a meltdown (green scenario).

Obviously if ES selects the meltdown scenario a retrace to the bright blue megaphone VWAP at 1960 is unlikely.

ES Overnight Crash

ES Crashed 50+ Points to its Bright Blue Megaphone Bottom Overnight

ES Crashed 50+ Points to its Bright Blue Megaphone Bottom Overnight

ES crashed over 55 points to its bright blue megaphone bottom overnight and is trying to form a megaphone bottom down there.

A typical megaphone would put in a retrace to its VWAP at roughly 1960 from here (green scenario).  But there’s already a complete triangle top (navy blue on chart) for the move out of the August 25th low, so the retrace probably has lower odds than in a normal situation, making the purple scenario (continued crash) a little more likely.

Still, the green scenario is the favorite.

A normal megaphone could also put in a ferocious wave up to the blue megaphone top (pink scenario), and I can’t rule that out.  But I’ve never seen this type of rising wedge rally put in that much of a higher high after the wedge breakout. So I consider the pink scenario very unlikely.

ES has not yet reached the target for its August 25th NYMO set-up.  When you get a NYMO close of -100 or lower, odds are overwhelming that it will be followed by a lower price low after a rally.  Then we got an unusual type of rising wedge for the rally that is overwhelming likely to produce a lower low.

So the target for ES remains to take out the August 25th low.  The target for the next rally will depend on exactly where it reverses after that lower low.

IWM Retest of Major Rising Megaphone Bottom

IWM Retested the Bottom of its Long-Term Rising Megaphone (Purple) Today - Next Target is Pink Megaphone Bottom

IWM Retested the Bottom of its Long-Term Rising Megaphone (Purple) Today – Next Target is Pink Megaphone Bottom

IWM retested the bottom of its long-term rising megaphone top today.

It should continue down from here to the bottom of the major pink topping megaphone before a bounce back to its VWAP.

If IWM should reenter the rising megaphone instead, it’s likely headed to a little over 120 to tag VWAP of its interior topping megaphone.