A Triangle Here Would Be Bearish

A Triangle Here Would Have High Odds of Being a Continuation Pattern

A Triangle Here Would Have High Odds of Being a Continuation Pattern

A triangle in this spot would greatly favor a bearish breakout outcome.

It would essentially put an extended triangle top on the chart as well as two separate head and shoulders patterns with a right shoulder triangle.

The target for these formations would be roughly 1950.

That’s at the three-year price channel bottom on SPY. I’d expect a megaphone bottom there that would take the price lower through the bottom of the channel.

ES Megaphone Scenarios

ES Megaphones

ES Megaphone Scenarios

ES blew its chance at a rising megaphone back to roughly 2080 last night when it collapsed through the potential formation bottom without making a new high.

That puts it back in at least a megaphone, and possibly a megaphone within a megaphone.

Right now all ES has done is tag or attempt to tag the blue price channel bottom three times.  But I believe it will break through sooner or later for a tag of the channel top.  A rollover price channel that was going to continue down would have been continuing down already.

So again, that puts us in a megaphone waiting for the breakout direction.  I think it will be down, but probably not before more upside, and I can’t rule out up.

Potential Overnight Scenario

Bright Blue Megaphone would be a Classic Scenario in This Spot

Bright Blue Megaphone would be a Classic Scenario in This Spot

There is a confirmed megaphone (silver on chart) on today’s move up, and as it’s now moving into its bigger waves, it will likely redraw into something like the new bright blue megaphone on the chart.

Other scenarios are still possible.  For example, the market could drift up all night, morphing this potential bright blue megaphone into a self-limiting rising megaphone.

But either scenario would likely lead to a big swoosh down after completion.

So unless the chart develops something surprising overnight (and it always could), the overall price action is still bearish for after the immediate future.

Update:  Here’s the rising megaphone scenario.  (There would be more bobbling around up at the top.)

Rising Megaphone Scenario

Rising Megaphone Scenario

And again, a genuine upward breakout through 2080 means forget about being short for now and jump on long for the attempt at a new all-time high.

Trading Notes

It’s getting late and that double bobble is deflating where it should be inflating.

Doesn’t look good for the Sornette set-up.

 

Update 15 minutes before the close:  I see that James Bullard, the hero of October 15, is out there saying that the Fed plan to raise rates is intact.

12:51 p.m. Pacific Time:  Note that ES is trying to establish a price channel up, but it’s probably too late in the day.  These seldom survive the night when they start this late.

ES Potential Price Channel Off Overnight Low

ES Potential Price Channel Off Overnight Low

Channels vs Megaphones – Decision Point Coming Up

Watch the Bottom of the Navy Blue Price Channel

ES has Broken Potential Orange Channel in Favor of Retest of Navy Blue Channel Bottom

ES has Broken Potential Orange Channel in Favor of Retest of Navy Blue Channel Bottom

So, I drew a potential orange rollover price channel on the ES chart, but I was never too enthusiastic about it because you’d usually see a retest of the navy blue price channel bottom.

After that retest, you can draw a rollover channel with more confidence.

ES had looked like it might have been setting up a little melt-up to the 2070ish area, but it looks a lot less like a melt-up set-up now.

I’m now assuming this move up is just a retest of the navy blue price channel bottom before a move to a lower low.

The lower low would put a sideways megaphone on the chart, which would usually swing up to a higher high for the sideways move.

A move at that point back up to the top of the navy blue price channel would set up a falling megaphone pattern for a big swoosh down (green scenario on chart).

Alternately, ES could turn at the retest of the navy blue price channel bottom, we could draw a proper rollover channel (red on chart), and ES could continue its price channel melt-down, likely rolling into an even steeper channel pretty quickly.

Also, if ES fails to turn down on the retest of the navy blue price channel bottom, a mini Sornette bubble melt-up could still be coming.

So the bottom of the navy blue price channel is important here.

Potential Little Sornette Set-Up

Little H&S Breakout Upwards Targets 2070 (As Far as 2080)

Little H&S Breakout Upwards Targets 2070 (As Far as 2080)

There’s a little H&S on the chart that is breaking out upwards. The top of the orange price channel will probably turn it into a classic mini Sornette bubble melt-up.

To get the target you take the height of the head to the neckline, and add it to the top of the head. That would give a target of roughly ES 2070. But the ES orange topping megaphone VWAP is at 2080, so if the market gets to 2070, that would tend to exert a strong pull.

Alternately, ES could get turned at the top of the orange price channel and cancel the Sornette set-up. It’s at the top of the channel as I post this.

 

ES Triangle Attempt Area

ES is at Potential Launching Point for Triangle or Even H&S

ES is at Potential Launching Point for Triangle or Even H&S

ES fell overnight to the area of its 2040 megaphone VWAP and started megaphoning there.

If it’s going to put in a triangle or even an H&S with a higher head, it will do it from here (purple scenario).

But more likely is a gesture at a wave up within a triangle in the context of a megaphone across 2040, then a continuation of the move down to the megaphone VWAP at 2000 (green scenario).

We could see another bounce or megaphone there, and then the way should be pretty clear to 1900.