ES End of Day

The Red Megaphone is Likely a VWAP Bottoming Megaphone within the Pink Megaphone - All a Way to Work ES Back to the Critical Decision Point at 1890

The Red Megaphone is Likely a VWAP Bottoming Megaphone within the Pink Megaphone – All a Way to Work ES Back to the Critical Decision Point at 1890

What’s going on is that ES needs to work its way back to the critical decision point at 1890, but the bears don’t believe it.

Traders are in the same state of mind as they were back at the top, when they were creating chop by buying every little dip on the 2-minute charts, except in reverse–they are now selling every pop on the 2-minute charts.

Yet ES has not taken out yesterday’s low.  Instead it spent the day megaphoning across VWAP of a likely bottoming megaphone, working it’s way slowly higher.

Longer-Term Scenarios

Longer-Term Scenarios

The key to the next big move is the price action at 1890.  A big megaphone struggle there that is won by bears (navy blue scenario) would complete a big continuation triangle that would likely break out downwards with a target of roughly 1650.

A melt-up through 1890, or a small, fast struggle won by bulls, would make the Sornette melt-up set-up the favorite (purple scenario).

A small, fast struggle at 1890 won by bears won make the green or bright blue scenarios most likely.  The green scenario is a prolonged megaphone move.  The bright blue scenario is a larger inverse H&S bottom.

The green and bright blue scenarios would both take ES down past the January 20 low, but within a set-up that’s unlikely to let the price travel far enough to confirm a bear market.  Instead, both would be a more prolonged way of launching a blow-off top.

 

Triangle

ES has Formed a Triangle (Red) Across its Rising Megaphone Retrace Target (Purple Line)

ES has Formed a Triangle (Red) Across its Rising Megaphone Retrace Target (Purple Line)

ES has formed a triangle (red) across a very important line. The purple line is the retrace target for the rising megaphone ES formed off the January 20 low.

ES can break out in either direction from the triangle, but because it put in an exact tag on the triangle top on its last move up, it can’t put in a real breakout downwards from here. ES would have to put in another move to the bottom then top to put in a genuine breakout downwards.

You sometimes see largish fake breakouts if something larger is forming, like an inverse H&S across the purple line.

Potential Sornette Melt-Up Set-Up to 1890

Potential Sornette Melt-Up Set-Up

Potential Sornette Melt-Up Set-Up

If ES breaks out through 1845 back to the navy blue megaphone bottom, the set-up is canceled.

The set-up would usually put in a double bobble–the first one is happening now (a pullback from the inverse H&S neckline). The second one would typically be a pullback after breakout.

If a Sornette set-up is going to fail, it would usually fail in the second bobble.

If the Sornette set-up fails, there’s still a potential flat-topped ascending-bottom triangle on the chart.  If that breaks out downwards, the falling megaphone set-up posted earlier is on.

The falling megaphone would usually bottom with an inverse H&S.  The falling megaphone should take out the January 20 low.  Assuming it does, a breakout from it would be a set-up to go long for a big move.  See this morning’s earlier posts.

Battle Between Lower Low and 1890 is Battle Between Big Bull and Bear Scenarios

ES Needs to Retrace to 1890 before Taking Out the January 20 Low to Preserve Big Bear Market Scenarios

ES Needs to Retrace to 1890 before Taking Out the January 20 Low to Preserve the Big Bear Market Scenario

ES must retrace to its orange megaphone VWAP at 1890.

The question is whether it takes out the January 20 low first.

If it heads down from here to the pink megaphone bottom it will be confirming a falling megaphone (red on chart below) and will be putting in a lower low before the retrace to 1890.

If ES Crosses 1800 to Put in the Lower Low, but Doesn't Make it to 1710, the Recrossing of 1800 to Get to 1890 Would Target a New All-Time High

If ES Crosses 1800 to Put in the Lower Low, but Doesn’t Make it to 1710, the Recrossing of 1800 to Get to 1890 Would Target a New All-Time High

There’s a big flat-bottomed megaphone on the ES and SPY daily charts. The ES bottom is at roughly 1800. If ES fails to travel 90 points (or to roughly 1710) on a breakout through 1800, the target upon recrossing 1800 becomes a new all-time high.

That would imply that ES will be forming a larger inverse H&S (red neckline on chart above) at the VWAP of its big megaphone off the August 24 low.

So to preserve the big bear market scenario, the market must allow the mandatory retrace to 1890 before ES takes  out 1800.  The retrace before a lower low wouldn’t guarantee a lower low is coming, but it would preserve the option.

If ES heads up to 1890 without having taken out the January 20 low, it could reverse at 1890 for the big move down to 1710 or lower to set up the big bear market scenario.

But it could also break out through upwards through 1890 and 1950 into a blow-off top scenario.

So 1890 remains the critical decision point unless ES takes out the January 20 low before it gets there.

Essentially bears have to let bulls back in the game to recharge the market and preserve serious bearish scenarios.

Now There’s a Falling Wedge

Now There's a Falling Wedge on the Chart

Now There’s a Falling Wedge on the Chart

Now there’s a falling wedge on the 2-minute chart. It has the minimum required touches on the sides so it would typically form some kind of little megaphone bottom here.

The inverse H&S set-up would usually form a little inverse H&S bottom on the head.

Unless the falling wedge puts in a breakout downwards (target roughly 40 points below) the bears are about spent.

A fast bottom here would leave bears in the running at the 1890 critical decision point. A slow bottom here will likely kill off the bearish scenarios.

Update on 2-Minute Chart

ES is Likely Either Forming an Inverse H&S (Red Neckline) or a Bottoming Megaphone (Pink) before a Retrace to At Least 1890

ES is Likely Either Forming an Inverse H&S (Red Neckline) or a Bottoming Megaphone (Pink) before a Retrace to At Least 1890

ES had an opportunity to form a triangle continuation pattern here. It failed because of excess bearishness.

ES could also have set up a falling megaphone bottom on the price channel posted earlier. That failed too on the last bullish wave.

That means ES is likely either forming an inverse H&S here (red neckline) or megaphone (pink on chart) for the required move to the 1890 critical decision point.

If ES spends a long enough time forming this bottom, the retrace to 1890 will break it out of its potential bigger falling megaphone, likely killing that set-up. So timing is now getting important.

Melt-Up Set-Up vs Deeper Correction

Melt-Up Set-Up vs Deeper Correction

Price Channel in Critical Decision Wave at Critical Level on 2-Minute Chart

ES is in the Critical Decision Wave of a New Price Channel on its 2-Minute Chart

ES is in the Critical Decision Wave of a New Price Channel on its 2-Minute Chart

ES is in the critical decision wave of a new price channel (pink) on its 2-minute chart.

This is the wave where the price either starts a bottom or sets up a breakout downwards from the channel into a melt-down.

The red line on the chart is the retrace target of the blue rising megaphone mentioned in this morning’s earlier post.

ES is a strong favorite to form a bottoming pattern across this level for a retrace to the critical decision level at 1890-1900.

We’re about to see a big move in one direction or the other.