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.