IBB Chart Features My Favorite Potential Crash Set-Up

A Reversal at the Blue Price Channel Top would be a Falling Megaphone Crash Set-Up

A Reversal at the Blue Price Channel Top would be a Falling Megaphone Crash Set-Up

IBB has the same crash set-up on its 15-minute chart as SPY had on its daily chart roughly half way through the dot-com crash.

The set-up starts with a four alternating touches on a price channel that confirms with a lower low and a breakout through the channel bottom.

Assuming the price reverses at roughly the original blue price channel top, odds are high that two crash waves of roughly equal size will follow.  The two crash waves are typically connected by a rip-your-face-off rally back to roughly the top of the original price channel.

IBB is back at the bottom of its long-term rising megaphone (gray on chart below) after the standard right shoulder bounce.

IBB is Ready for Breakout from its Gray Long-Term Rising Megaphone

IBB is Ready for Breakout from its Gray Long-Term Rising Megaphone

A breakout through the bottom is the set-up to short.  The minimum target is the level of the lowest touch on the rising megaphone bottom.

When rising megaphone breakouts fizzle out, it’s usually with a sideways megaphone from the breakout.

Rising Wedge H&S Right Shoulder

Potential Rising Wedge (Red) H&S Right Shoulder

Potential Rising Wedge (Red) H&S Right Shoulder

ES has pierced its price channel top by just enough to complete a rising wedge right shoulder on an H&S top for the move out of the August 24 low.

By putting in a rising wedge right shoulder, ES has managed to preserve its most bearish scenarios despite piercing the channel top.  Once again, a positive 30+ point day turns into a bearish pattern.

Because of the rising wedge, ES is unlikely to make it past the 1920ish level before heading down to take out the August 24 low.

Assuming the H&S breaks out through the neckline, its target is roughly ES 1711, which would be low enough to confirm a bear market.

ES Price Channel vs Falling Megaphone

Right Now ES has an Intact Falling Price Channel on the Chart that Needs Confirmation

Right Now ES has an Intact Falling Price Channel on the Chart that Needs Confirmation

Right now ES has a falling price channel on the chart (navy blue) that needs to confirm by putting in a lower channel low before it breaks the top.

If ES puts in a significant break of the top before putting in a lower low, it’s likely forming a falling megaphone.

A falling megaphone is a bottoming pattern, which would suggest that ES will take out the August 24 low and then reverse for a run to a new all-time high.

If ES confirms its price channel, it would be heading down into its critical decision wave, where it will either start forming a bottom or set up a breakout downwards into a melt-down.

ES Overnight Price Channel is in Critical Decision Wave

ES Overnight Potential Mini Price Channel is in its Critical Decision Wave

ES Overnight Potential Mini Price Channel is in its Critical Decision Wave

ES formed a potential mini price channel (pink) overnight that just confirmed with a higher high within the channel.

The channel is now in its critical decision wave where it either starts a top or sets up a breakout into a melt-up. (Because it’s a very small channel, any melt-up is likely to be relatively small as well).

If the channel confirms and starts a top, ES is likely forming a larger downwards price channel. If ES breaks out into a mini melt-up, it it’s likely headed up to at least a megaphone VWAP at 1920. If it gets through there, it’s likely headed for the megaphone top at 1980.