Potential ES Topping Megaphone Progress

ES is Forming a Potential H&S with a Neckline at the VWAP of its Blue Megaphone

ES is Forming a Potential H&S with a Neckline at the VWAP of its Blue Megaphone

ES has a confirmed megaphone on its chart (blue). It formed across the top of the triangle ES began forming in February. A megaphone across the top of a potential topping triangle usually breaks out downwards, and so does the triangle.

The blue megaphone is complete except for a complete topping formation at or across VWAP before breakout downwards, and ES seems to be forming a head and shoulders with a neckline at that VWAP.  Right now ES appears to be in a falling megaphone (orange on chart) that is likely to take the price back to that neckline.

ES could also abort the falling megaphone at roughly 2110.  A breakout through the formation top should mean a run to the megaphone top at 2150ish (pink scenario).  That would simply complete a manic 5th wave on the blue megaphone. You’d then expect a topping formation at or across the top, followed by a plunge to the megaphone bottom.

But if ES puts in a lower low for the orange falling megaphone, it will next be heading into the right shoulder of the potential H&S.  Because of the falling megaphone, that should be a doozy of a right shoulder–definitely a Sornette melt-up.  Plus, any H&S right shoulder can fail, which in this case would mean the price would continue to the blue megaphone top.

If ES makes it back to the 2080-2090 here, and completes the right shoulder without putting in a new high, and then breaks out through the H&S neckline, the blue megaphone is legal for a breakout downwards, which would mean The Top could be in.

ES Rising Wedge

ES Formed a Rising Wedge (Gray) Most of the Day and Broke Out of it After Hours

ES Formed a Rising Wedge (Gray) Most of the Day and Broke Out of it After Hours

ES formed a nice extended rising wedge (gray on chart) most of the day and has already broken out of it after the close.

You could start a short position based on that breakout and add if ES reenters the former top of its falling wedge (pink on chart).

I expect another wave down to a lower low for the orange rising megaphone as drawn on the chart.  The lower low doesn’t have to reach the bottom of the formation, but often would.

After the price bottoms on the next wave down (assuming we get that wave down) there should be a very deep retrace to the level of the highest touch on the top of the orange falling megaphone.

This scenario is cancelled if ES stays up here megaphoning back to roughly ES 2130 instead of heading down hard.  In that case, the falling megaphone is over and the set-up will be to bet the breakout from the megaphone or other sideways move.

Most likely that breakout would be down for a move down to ES 2080.  There ES would likely bounce.  Then we see.  But ES is highly likely to see 2050 again even in the most bullish scenarios.

Potential Mini Melt-Up Set-Up

ES is Forming a Potential Mini Melt-Up Set-Up Right Now

ES is Forming a Potential Mini Melt-Up Set-Up Right Now

ES is right now, as I post this, in the process of trying to complete a Sornette bubble formation lumpy top. Lumpy tops are megaphone-like formations that tend to lead to melt-ups if they complete and break out upwards.

The lumpy top could still put in a lower low (green scenario).

Or it could go straight into an attempted breakout (purple scenario).

Breakouts that fail tend to make a new high for the formation, small retrace, then another new high and a larger retrace that takes out the low of the first retrace.

Breakouts that succeed tend to lead to short squeeze melt-ups.

Assuming we get a successful upward breakout, the first target is the top of the orange falling megaphone.  From there the price could make a small retrace, then a genuine breakout.  Or it could head down fast and hard to a lower low before breaking out of the orange falling megaphone.

DX Price Channel

DX Price Channel is in Critical Decision Wave

DX Price Channel is in Critical Decision Wave

The Dollar Index formed a price channel (orange on chart) over the weekend and today, and is now in the critical decision wave within the price channel.

This is where the DX either breaks out upwards from the channel to accelerate the move up or forms a top or sideways consolidation for the channeled move.  A consolidation could break out in either direction.

ES End of Day

ES Falling Megaphone (Orange) at End of Day

ES Falling Megaphone (Orange) at End of Day

ES is likely in the middle of a falling megaphone (orange on chart) within a topping megaphone (purple on chart) across the top (red line) of the triangle that began forming in February.

The reentry through the red triangle top is consistent with what you’d tend to see with a major topping triangle.

ES has completed and broken out of a head and shoulders at the all-time highs (bright blue neckline, which is roughly at the red triangle top).

TRIN closed at 2.20.  A close that high tends to be followed by a rally.

Plus, ES completed a very small bottoming megaphone at the end of day and broke out upwards from it (see comments on earlier post for chart).

All of this is consistent with a swing up to the top of the orange falling megaphone for a retest of the bright blue H&S neckline at roughly ES 2120.  A reversal there would lead to another swing to the falling megaphone bottom around ES 2080 (green scenario on chart).

But there’s already a legal smaller falling megaphone on the chart and ES could also just keep going through the neckline and up to the retrace target at roughly 2130 (purple scenario).

The smart poker move would be to let more bears in at the neckline for a swoosh to ES 2080, so that’s what I think the market will do.

ES 2080 is a major multi-megaphone VWAP level and I can almost guarantee there will be buying there (plus major bear flight) for a melt-up into the right shoulder of a larger H&S with a neckline there.  The right shoulder target would be the level of the highest touch on the orange falling megaphone top.

After that melt-up the price should return to the purple megaphone bottom a little below 2050.

From there it will bounce to at least 2080 once more.  It would usually reverse at 2080 for a breakout downwards from the purple megaphone but at this point another trip to the purple megaphone top can’t yet be ruled out.

 

ES Falling Megaphone Scenarios

Two Falling Megaphone Scenarios

Two Falling Megaphone Scenarios

The smart poker play here would be for the market to set up a mini melt-up back to the red falling megaphone top, then put in another wave down within it (green scenario).

Like triangles, falling megaphones often redraw themselves in the middle.

The green scenario would put in a head and shoulders with a neckline at roughly 2080, and then a melt-up right shoulder.

We could see a mini Sornette melt-up both for the wave back to the bright blue H&S neckline and for the right shoulder of the larger H&S with a neckline at 2080.

 

ES Is Back Inside Topping Triangle But Put In A Falling Megaphone To Get Here

ES Formed a Falling Megaphone (Red) to Get Back Down Here

ES Formed a Falling Megaphone (Red) to Get Back Down Here

ES is back inside the topping triangle it started forming in February and back inside a fake inverse head and shoulders, cup and handle, and other trading formations.

Topping triangles usually make fake breakouts to complete.

However, ES formed a falling megaphone (red on chart above) to get back down here.

ES could turn right about here to redraw the little H&S neckline on its short-term chart or it could keep going to the 2080 area before reversing.  But it should retrace to roughly the level of the first touch on the top of that red falling megaphone.

That means we’d usually see a big melt-up right shoulder coming up here.

If ES works its way to the top of the falling megaphone but doesn’t break out, it could put in another wave down in the formation before the big retrace right shoulder.

This is a great spot to start watching for mini Sornette bubble melt-up set-ups.

Trading Notes

It’s going to try here (8:30 a.m. Pacific Time) for another little Sornette mini bubble melt-up in yet another try to get to a new high.

Could instead form a little megaphone across ES 2124 and it could break out downwards.

9:17 a.m. Pacific Time:  If you’re playing along on this pre-holiday Friday, here’s where we’re at:

Friday Potential Megaphone vs Mini Bubble to Megaphone Top

Friday Potential Downward Breakout vs Mini Bubble to Megaphone Top

11:07 a.m. Pacific Time:  Back at VWAP after trip to megaphone top.  Can put in a double wave to the top or continue to the bottom.

Double Wave Up vs. Down

Double Wave Up vs. Down

Forgot to mention the alternate scenario, which is a breakout through megaphone top to new all-time high at top of larger megaphone.

The Super-Bullish Breakout to Top of Larger Megaphone Scenario

The Super-Bullish Breakout to Top of Larger Megaphone Scenario

The purple scenario, with a price channel and price channel breakout, would be the easiest to trade–just bet the price channel breakout after a retrace after a brief pierce.  Target would be new high.

The green scenario is more likely to stall out as a double wave to the little gray megaphone top, so would require judgment there.

11:28 a.m. Pacific Time:  That green scenario directly above would like be a retest of the top of a potential right shoulder triangle.  In other words, the move would be highly likely to end at the gray megaphone top.

The purple price channel scenario would likely lead to a new high.