ES After Hours Breakout Should Move Sideways Overnight

ES has Broken Out of its Falling Wedge / Ending Diagonal After Hours

ES has Broken Out of its Falling Wedge / Ending Diagonal After Hours

ES has broken out of its falling wedge/ending diagonal after hours.  However, the low before breakout was an exact touch on the bottom of the falling wedge.  That means ES is likely to move sideways overnight and put in at least one lower low during the sideways move (usually two). Continue reading

SPY Topping Progress

Left to Its Own Devices, SPY Would Correct From Around Here to Below its 2011 Top

Left to Its Own Devices, SPY Would Correct From Around Here to Below its 2011 Top

Left to its own devices, SPY would correct from right around where it is now to a little below the 2011 top.  It would likely need some more wriggles up here, but after that, it could be a pretty straight shot.

Final wriggles and a straight shot would also fit what usually happens after part two of a classic Sornette bubble.

Here is a close-up of the end of that 2+ year navy blue rising wedge, which is where the top is forming that will lead into that correction:

SPY Close-Up of End of 2+ Year Rising Wedge (Navy)

SPY Close-Up of End of 2+ Year Rising Wedge (Navy)

SPY is obviously headed down to the bottom of its 2+-year rising wedge (navy blue on chart).  But the bottom of that rising wedge is such an obvious target that it really should have gotten there today.  It may just drop straight down to there first thing tomorrow, but the fact that it didn’t get there today is likely important.

I’ve been looking for a move to roughly SPY 195 before a new all-time high, and the reason has been the way SPY got up to its all-time high in a series of price channels.  (I’ve left out some of the price channels on the chart below for simplicity.)

SPY Got to Its Recent Top By Channeling Up the Gray and Blue Price Channels

SPY Price Channels – the Green Scenario is How the Top Should Have Played Out

When SPY dropped out of the bottom of the blue channel, it was clearly forming a top.  But usually the tops that form after channeled price moves are very orderly.  The price moves to roughly the low of the previous touch on the most recent channel bottom (which would have been SPY 195), then moves up to a new all-time high, then completes a head and shoulders.  (See green scenario on price channel chart above.)

But when SPY dropped below 195, it was getting disorderly.  That’s actually the 4th or 5th time in the past few weeks that SPY and ES have violated one price channel or trading formation norm or another, and always with a larger than expected bearish move.  That’s very bearish, and a sign of an important long-term top.

Still, what today’s disorderly move is most likely to lead to is simply a megaphone top up here, instead of a head and shoulders.  Here’s what it would usually look like:

SPY Megaphone Top Scenarios

SPY Megaphone Top Scenarios

You’d see the purple scenario roughly 25-30% of the time if there were no price channels involved.  Because of the price channels, you’d see the green scenario roughly 90% of the time.

Meanwhile, ES and SPY put in ending diagonals late in the day:

ES Late-Day Falling Wedge

ES Late-Day Falling Wedge

NYMO closed well below its bottom Bollinger Band at -87.35 (a buy signal).  The CPCI fell to 0.74 (bullish).  And TRIN closed modestly bullish.  Bullish!  There’s also one of the most fantastic short-squeeze set-ups on the ES and SPY charts that I’ve ever seen.  A little buying during low volume overnight, and it’s on.

So, there’s some more tricky trading ahead.

If tomorrow is a drop straight to the navy rising wedge bottom, we’ll likely see a retrace to SPY 195 and then the big correction is on.

But if tomorrow SPY reverses well before reaching the bottom of the navy blue rising wedge, the orange megaphone scenario is on.  There will be a chance of a reversal at SPY 197.34, but it really should put in one last new all-time high, then down down and out.

I’ve drawn simple crash scenarios on the charts above, but things could get more complicated.  For example, there’s a possible big reversal at SPY 181 to one more new all-time high. But that’s unlikely, because of the Sornette bubble formation.

Most likely SPY will put in at least a 20% correction within a couple of weeks after completing this top.  That’s based on what happens when Sornette bubbles finally break.

After that, left to its own devices, it should eventually continue lower, but likely there would be a lot more complications en route.



Larger Falling Wedge Set-Up

ES Larger Falling Wedge

ES Larger Falling Wedge

I started a nibble long position on the breakout from the pink ending diagonal/falling wedge.  I’ll be adding on a breakout of the blue ED/falling wedge.

This is the second time in July (the other was July 17th) that a move that should have been relatively small and contained turned into something that went a lot farther.  I think there are liquidity problems.

I still think this is the dip before the head of a head and shoulders, but we’ll see for sure at ES 1970ish.

IWM has formed what looks like a 3rd-wave bottoming megaphone within a larger megaphone.  That bottoming megaphone swings up to 117.50 next.  Then a retrace to roughly 114.32, then most likely up to 125 for The Top.

Lots of charts after the close.

Short-Term Set-Up (Updated 3x)

Endiing Diagonal / Falling Wedge Across Megaphone Bottom = Buy on an Upward Breakout

Ending Diagonal / Falling Wedge Across Megaphone Bottom = Buy on an Upward Breakout

An ending diagonal should complete with either a small false breakout through the bottom or by dying out in the formation middle.  Then you would buy an upward breakout.

If the low before an upward breakout is an exact touch on the bottom, you’ll probably see a sideways formation after breakout.  Then you bet the breakout from that.

If this keeps going down it’s like the 2011 flash crash or 1987.  Those didn’t honor any formation bottoms or mandatory retraces.

But most likely we’ll get the upward breakout, and most likely after that we’ll get a new all-time high, and that will be the time to get short.

Update 1 & 2:  Intraday NYMO has reached -88.  Could have some great NYMO set-ups by end of day.  If NYMO reaches -100 by end of day (doesn’t have to close down there), a rally to VWAP without a new all-time high is likely.  You’d short at the purple megaphone VWAP.

If NYMO is -80 or lower at end of day, but never reaches -100 intraday, it’s good for a fast melt-up, likely to a new all-time high, with a lower low likely within a couple of weeks.  This would mean the market’s topping faster than expected.

Update 3:  Breakout.  The only concern is if it takes a lot of time moving sideways, working off the excessive bullishness without moving significantly upwards, then breaks out downwards from the consolidation.

Breakout Scenarios

Breakout Scenarios

Going to Megaphone Bottom then Mandatory Retrace to At Least 1970ish (Updated 5x)

Purple Megaphone Bottom is Target

Purple Megaphone Bottom is Target

Okay, obviously it’s going for the purple megaphone bottom.  It would often break out the bottom a little in this situation to form a megaphone or inverse H&S at or across the purple megaphone bottom.

But it can’t go very far without a retrace to the purple megaphone VWAP at 1969.50-1970ish.  Usually you’d see a reversal there for a breakout through the purple megaphone bottom with an initial target below 1900.

But in this particular situation, odds are very high that this is the dip before the head of a head and shoulders formation before a major correction.  A run back up to the purple megaphone top (and possibly further, after a retrace) and a new all-time high is still the favorite.

Still, it will be dicey at VWAP.

Update, 7:55 a.m. Pacific Time:  Note that TICK has reached -1250 (through its lower Bollinger Band) and is headed up.  Also, TRIN started the day bearish but is now bullish.  (It broke its bottom Bollinger Band.)

Update 2, 7:59 a.m. Pacific Time:  ES has reached its purple megaphone bottom.  There should be a consolidation here or immediately below here, and the consolidation should break out upwards.  But if it fails to consolidate, or it breaks out downwards, the next target is 1875 or a little above.

Update 3, 8:02 a.m. Pacific Time:  Note that the consolidation has started.

Update 4, 8:05 a.m. Pacific Time:  Note that by breaking the price below the July 17 low, they triggered even more shorts.  This is a beautiful short-squeeze set-up to get into the head of a head and shoulders.  Remember that big money will be selling at every battle, and the only people who will be buying are the squeezed shorts and technical traders.

The only reason the price should get to a new high is because there’s still time to get out, so nobody’s panicking yet.  They will likely stay disciplined and hit every stop congestion area.

Update 5:  8:12 a.m. Pacific Time:  Look at TRIN (chart below).  Below 1.00 is bullish.  The low read means there’s a lot more volume on advancing stocks than declining stocks.

TRIN 8:12 a.m.

TRIN 8:12 a.m.