Breakout

ES has Broken Out Downwards from Today's Triangle, the H&S, and the Potential Price Channel

ES has Broken Out Downwards from Today’s Triangle, the H&S, and Its Potential Price Channel

ES has broken out downwards from the little triangle it formed most of today, the little H&S on its chart, and its potential (now killed) price channel.

The only thing that can stop a pretty straightforward drop to 2000 would be a megaphone right shoulder (purple scenario).

If the purple scenario is going to happen, you’d usually see a little baby megaphone across the H&S neckline first, and it would break out upwards.

The green scenario would usually be more likely, but I worry that low volume heading into Easter will delay things.

ES Rising Megaphone Breakout Targets 2000

ES has Broken Out of its Rising Megaphone

ES has Broken Out of its Rising Megaphone

ES has broken out of its rising megaphone and bounced at the bottom of its potential price channel.

But the bounce looks weak.  I don’t expect that channel to hold.  If we do see a higher high within the channel, that changes all the scenarios on the chart.  Instead of a trip to 2000, we’d expect a classic B wave retrace, then a C wave up (not drawn on chart above).

ES now has a little H&S on the chart that needs only a breakout downward through the neckline.  If you start seeing repeated fake breakouts, a right shoulder megaphone is forming.  Usually these would lead to a new high for the move out of the March 26 low, but lately these right shoulder megaphones have been breaking out downwards.

Assuming the trip to 2000 plays out, you can expect a bounce or big continuation pattern there.  I expect 2000 to only be a stopping point en route to 1900 and the bottom of the 3-year price channel.

Rising Megaphone Top on ES Move Out of Triangle

ES Formed a Rising Megaphone (Bright Blue) on Overnight Move

ES Formed a Rising Megaphone (Bright Blue) on Overnight Move

ES formed a rising megaphone (bright blue) on its move out of its purple triangle. Rising megaphones are topping patterns.

Usually a rising megaphone would complete with a sideways move to get the price back to the formation bottom, then break out and head down.

Unless you see ES form a price channel inside the rising megaphone, or a new rising megaphone top within the rising megaphone top, this suggests ES will start a move down to 2000 pretty soon.

There should be another rally or continuation pattern at that level.

Overnight Triangle Upward Breakout

They Broke ES Out of its Purple Triangle Overnight - Critical Decision Point Now is 2080

They Broke ES Out of its Purple Triangle Overnight – Critical Decision Point Now is 2080

They broke ES upwards out of its purple triangle overnight. Now it’s nearly back at its orange topping megaphone VWAP level of 2080, which is a critical decision point.

If ES wants to form the pink triangle here, it should either slice through 2080 quite easily or start a megaphone large enough across 2080 to get the price to the pink triangle top (purple scenario).  A subsequent pullback to 2080 and upward breakout through the pink triangle top would target the top of the orange megaphone for the head of a head and shoulders top (red scenario).

ES could also form a fast top at 2080 and reverse there for a second leg down to 2000 in this correction (green scenario).  Then it could rally again to put in a connecting wave before a bigger plunge.

Topping formations can always, at any point, morph into a different topping formation.  The most important thing about this top is whether it pierces the top of the 3-year price channel while forming.  If it does, this topping pattern is likely morphing into a continuation pattern for a big move up.

But that’s doubtful at this point.

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.