SPY Put-Call Ratio – Both Bulls and Bears Dig In

The SPY Put-Call Ratio Dropped to Roughly Neutral Today on a Strong Rise in Open Interest

The SPY Put-Call Ratio Dropped to Roughly Neutral Today on a Strong Rise in Open Interest

SPY put and call volume both dropped today, though SPY put volume dropped a lot more–enough to bring the SPY put-call ratio back down from its upper Bollinger Band to its 20 dma.

The drop in the ratio happened on a strong rise in open interest. That means both bulls and bears were digging in today. These are perfect conditions for a triangle or similar consolidation.

ES Megaphones in Megaphones Usually Mean a Triangle

ES is Forming Megaphones (Purple) Inside Megaphones (Orange) - That Usually Means a Triangle is Forming (Red)

ES is Forming a Megaphone (Purple) Inside a Megaphone (Orange) – That Usually Means a Triangle is Forming (Red)

ES killed a potential melt-up today and instead began forming megaphones inside megaphones.  Usually a series of interior megaphones across the VWAP of larger megaphones mean that a triangle is forming.

Any triangle can be a bottoming pattern, but a triangle in this spot would usually serve as a continuation pattern for the ES move down to the critical decision point at the March low.

 

ES Megaphone Consolidation

ES is Likely Forming a Megaphone Consolidation En Route to the March Low Critical Decision Point

ES is Likely Forming a Megaphone Consolidation En Route to the March Low Critical Decision Point

ES is likely forming a megaphone consolidation en route to the March low critical decision point.

The orange interior megaphone is already well formed.  The blue megaphone is likely, but the sides could be a lot steeper (even steep enough for a swing to the March low within that megaphone).

The market is likely already in the 4th of July holiday doldrums, but as the megaphone sides get wider apart, we could see some dramatic price moves.

Rally Off the SPX 200 dma

ES is Working on a Topping Megaphone (Blue)  Inside a VWAP Megaphone (Pink) Inside a Megaphone (Blue)

ES is Working on a Topping Megaphone (Blue) Inside a VWAP Megaphone (Pink) Inside a Megaphone (Blue)

Although there’s a lot going on in the ES chart (ascending triangle failure, rising wedges, inverse H&S failure, head and shoulders patterns, a long-term price channel, a long-term rising megaphone and more), the easiest way to look at the chart since early April is as a series of megaphones inside megaphones.

Essentially ES is stuck at 2074-2079 and all the swings around that level are a lot of stop eating, distribution and noise.

ES is en route to the bottom of the larger blue megaphone that began forming back in April.  It will almost certainly retest the multi-megaphone VWAP area at 2074-2079 first and the 2092 area wouldn’t be a surprise.

The most recent interior blue megaphone will make ES legal for a plunge through the bottom of the large blue megaphone to roughly 1900 (purple scenario), but it doesn’t guarantee we’ll see it.

ES could also start a new megaphone across 2074-2079 on the likely retest of that level, but even if it does, ES is likely to complete a trip to the March low very soon, and that will be the critical decision point for a big rally vs a plunge.

What ultimately happens with these megaphones inside megaphones is that they finally take the overall shape of a triangle or head and shoulders and then break out in one direction or the other, but they can keep moving sideways and putting in fake breakouts for a very long time.

Everyone’s Short But Open Interest is Low

Today the equity put-call ratio soared through its upper Bollinger Band to 0.94.

The CPCI ended the day up near its top Bollinger Band.  So did the SPY put-call ratio, but on a large drop in open interest, which is now very low.

So, even though there was a huge surge in put volume today, SPY put-call open interest has dropped so low that the imbalance may not have a huge effect.  By that I mean that you would usually see a strong up day tomorrow, but that it’s less likely to be the start of a big rally than part of a few days’ consolidation before a move to a lower low.

ES and SPY also put inverse H&S failures on their charts today, with breakouts past the head.

Today SPY Broke Out Past the Head of a Failed Inverse H&S

Today SPY Broke Out Past the Head of a Failed Inverse H&S

The inverse H&S has an irregular placement up at the all-time high, but I saw a number of traders tweeting about it last week so presumably people were betting it and that accounts for some of today’s meltdown.

The target for the downward breakout is a little below the March low, which is also the target for the failed breakout from the ascending triangle that started forming with the March low.

You’d often see a retest of the breakout past the inverse H&S head before the price continued to its target.

DAX Monster Price Channel is in Critical Decision Wave

DAX Price Channel is in Critical Decision Wave Between Bottoming and Melt-Down Set-Up

DAX Price Channel is in Critical Decision Wave for Bottom vs Melt-Down Set-Up

DAX will confirm a price channel (orange lines in chart above) if it makes a lower low before breaking through the channel top.

This would be the critical decision wave for the channel, in which DAX either begins a bottoming pattern (green scenario) or sets up a breakout into a series of melt-down channels (purple scenario).

The melt-down out of a channel this big would tend to be awesome.

ES to March Low – Bounce Here would be a False Bottom

ES Could Put in a False Bottom at Roughly 2050 or Go Straight for the March Low

ES Could Put in a False Bottom at Roughly 2050 or Go Straight for the March Low

ES just took out the overnight low in a melt-down and is just below 2050 as I type this.

ES would often put in a false bottom here for a retrace to 2078-2079 before continuing down to the March low or it could just go straight for the March low.

The SPX is just above its 200 dma and that is likely to provide support for the bounce.

The March low is a critical decision point.  Either we’ll see strong buying into the selling below the 200 dma and the March low will be the starting point for a potentially huge rally or ES could continue melting down to roughly 1900 before a meaningful bounce.

ES Price Channel Breakout

ES Confirmed Its Price Channel & Then Broke Out of It

ES Confirmed Its Price Channel & Then Broke Out of It

At the open, ES was in the critical decision wave of a new price channel. ES confirmed that price channel with a higher high and then quickly broke out downwards from it.

ES could put in another sideways move like a triangle or megaphone between the channel high and overnight low. But if ES puts in a genuine breakout past the overnight low, it’s likely headed to its critical decision point just below the March low.

From there ES could rally hard into the right shoulder of the potential H&S on the daily chart, or it could rally into a right shoulder failure that melts the price up to 2200.

Or ES could just fall through the March low in a larger correction to roughly 1900 before moving into the right shoulder of a larger H&S.

The price action just below the 200 dma should tell us which it will be.