Updated Odds on Blow-Off Top vs. Imminent Crash

ES Right Shoulder Rising Wedge (Blue)

ES Right Shoulder Rising Wedge (Blue)

In this post, I’m going to revise some of the things I wrote in Friday’s “High Alert” post.  I’ve had time to think about the charts some more and I want to update the odds of a blow-off top vs. a crash coming any day now.

There are a number of formations on the chart that affect these odds.  I’m only going to mention the most important ones.

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High Alert: SPY Rising Wedge/Ending Diagonal Could Lead to the Big One

SPY Rising Wedge/Ending Diagonal (Red)

SPY Rising Wedge/Ending Diagonal (Red)

SPY now looks like it’s going with the ending diagonal topping option.  It could still complete the ending diagonal with a sideways move, like a head and shoulders or megaphone.

I assume SPY is trying for the top of its 2-year rising wedge, which would be at a little over 193 on Monday, or its 6-month megaphone top, which would be in the mid 194 area on Monday.

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ES Overnight Megaphone – Messy Trading Likely Ahead

ES Overnight Megaphone - They're Not Likely to Make This Easy

ES Overnight Megaphone – They’re Not Likely to Make This Easy

This topping or continuation pattern is likely to be a mess.

A streamlined version of the potential correction is below.

ES Potential Dip, Simplified Version

ES Potential Dip, Simplified Version

It’s important to keep in mind that we may see a higher high before a dip.  For example, although this pattern looks like a potential head and shoulders right now, it can easily morph into a rising wedge/ending diagonal and extend and extend.  There’s another megaphone top overhead at roughly 1930, and ES and SPY may even go for that before a dip.

If they do, the dip after may be the Big One, rather than a dip.  But they wouldn’t be guaranteed to crash.  It would all depend on what happened at roughly ES 1868.

So the exact high and the exact order of things make a huge difference here.

 

SPY Put-Call Ratio Drops, But Still High

Thursday SPY Put-Call Ratio

Thursday SPY Put-Call Ratio

The SPY put-call ratio dropped today from 2.52 to 2.09.  A ratio of 2.09 is still very high.  After yesterday’s spike through the ratio’s top Bollinger Band, the target is the bottom band.

SPY put volume went up by 27% on a strong rise in open interest.  SPY call volume went up by 53%.

The CPCE (Equities Put-Call Ratio), at 0.52, is near its lower Bollinger Band.

SPY Short-Term Price Channels Suggest a Top Here

A Neely Count of the Touches on the Sides of SPY's Short-Term Price Channels Mean a Top or Consolidation Here

A Neely Count of the Touches on the Sides of SPY’s Short-Term Price Channels Mean a Top or Consolidation Here

I’ve thrown price channels on SPY’s move up from the May 20 low, and a Neely-method count of the touches on the sides indicates the move has to top or consolidate here.

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