ES Needs to Go Further Down to Truly Escape This Area

ES Needs to Retrace to the Red Megaphone VWAP to Redraw the Red Megaphone Top for an Escape Upwards

ES Needs to Retrace to the Red Megaphone VWAP to Redraw the Red Megaphone Top for an Escape Upwards

ES has broken out of last night’s price channel but its overnight rally doesn’t look very robust.  Although a breakout past Friday’s high to try for a Sornette melt-up set-up (pink scenario) is possible, it’s more likely that ES will merely retest the orange megaphone top from inside before heading further down.

If ES can make it all the way down to the big red megaphone VWAP at roughly 1885, the red megaphone top should be redrawn to connect the February 1 and February 26 highs.  That means a retrace to 1885 and reversal there would free ES for a genuine upwards breakout from the consolidation ES has been in since mid-January (green scenario).  The minimum target would be 2100, but ES would have goods odds of breaking out past the high into a blow-off top.

If ES reverses at the orange megaphone VWAP, and breaks out past Friday’s high, it will have just put in a megaphone 5th wave false top.  That would likely mean a melt-up to roughly 2100 and then a retrace to 1885 or even the red megaphone bottom (purple scenario).

ES could also head down to the orange megaphone bottom, reverse to its VWAP, and then break out downwards from the orange megaphone to the red megaphone bottom (blue scenario).

ES Confirms a Price Channel Sunday Night

ES Confirmed a Price Channel Sunday Night and It's Now in its Critical Decision Wave

ES Confirmed a Price Channel Sunday Night and It’s Now in its Critical Decision Wave

ES confirmed a price channel (red on chart) Sunday night and the channel is now in its critical decision wave. That’s where the channel either starts a sideways move (a bottoming or continuation pattern, depending on the breakout) or breaks out downwards into a melt-down.

See today’s early post for the implications of breakout direction from a sideways move at this level.

Down Short-Term, Up Long-Term and Vice Versa

ES has a Runaway Bullish Set-Up (Pink Scenario) but Usually a More Bearish Short-Term would Mean a More Bullish Long-Term and Vice Versa

ES has a Runaway Bullish Set-Up (Pink Scenario) but Usually a More Bearish Short-Term would Mean a More Bullish Long-Term and Vice Versa

ES has a big potential Sornette melt-up set-up on the chart (pink scenario) with a target of 2100, but usually it wouldn’t trigger in this spot.

Instead, usually the orange megaphone would complete as a conventional megaphone, which means short-term bearishness would usually be more bullish here longer-term than short-term bullishness would be.

A fast reversal Sunday night to a new high would usually mean a big H&S top is forming across the orange megaphone top before a breakout downwards from the megaphone with a minimum target of 1805 and a potential target of 1660 (blue scenario).

The blue scenario would likely mean a tag of 2000 before a big reversal.

Complex Inverse H&S Scenarios

ES has a Complex Inverse H&S Set-Up on the Chart

ES has a Complex Inverse H&S Set-Up on the Chart

If bears can get the price back to 1933 straight from here, the purple scenario would be the favorite.  The market is unlikely to get all the way to the orange megaphone bottom without having put in more of a topping pattern up at the megaphone top.

But this market needs to let bears back in the game with a pullback to at least 1933 (roughly) or the upwards move will run out of juice.  The shorts look pretty much squeezed dry.

Either We See Some Meaningful Push-Back from the Bears or ES is Going to Roll Over

Either ES Puts in a Serious Double Bobble Here or Its Going to Put In a Top Before a Trip to the Orange Megaphone Bottom

Either ES Puts in a Serious Double Bobble Here or Its Going to Put In a Top Before a Trip to the Orange Megaphone Bottom

There’s still a potential Sornette melt-up set-up on the chart (purple), but we haven’t seen enough pushback from the bears to make it likely. A Sornette melt-up set-up is about overwhelming bullishness overcoming a strong fight from bears, not a short squeeze that will soon run out of juice.

The price action on the move out of Wednesday’s low looks more like a 5th wave for the orange megaphone, which is another way of saying bearish capitulation.

That means ES will likely put a head and shoulders top at or across the orange megaphone top before a trip to the megaphone bottom and back to VWAP for a decision.

Otherwise, we need a bigger dip here to create a proper double bobble for a Sornette breakout, and then it would have to be followed by another serious skirmish for a second bobble and a genuine breakout upwards on real energy.

Head and Shoulders vs Sornette Melt-Up Set-Up, Day 2

ES Spent the Entire Night Avoiding a Decision on Which Way to Break Out

ES Spent the Entire Night Avoiding a Decision on Which Way to Break Out

The purple scenario has a target of the red megaphone top at roughly 2100 before a retrace to 1950.

The green scenario has a minimum target of the red megaphone bottom and a breakout target of roughly 1660.

ES could also go for the orange megaphone top, then retrace all the way to the orange megaphone bottom and back to its VWAP for the critical decision.

Update on 2-Minute Chart

Potential Bottoming Megaphone

Potential Bottoming Megaphone

There’s a potential bottoming megaphone on the ES 2-minute chart (blue).

You bet on a breakout past the megaphone high or low after a retrace to VWAP.

If it’s the first breakout past the megaphone high or low after a retrace to VWAP, it’s often a double-wave fake breakout before a move to the megaphone’s other side–but not always.

I’ve drawn two sample scenarios on the chart, but there are a lot more possible scenarios than I can fit on the chart. For example, ES could keep megaphoning here, then after the megaphone gets big enough, start a new megaphone across the megaphone VWAP, then another new megaphone across the megaphone VWAP. If you see this, a triangle is likely forming.

A small megaphone could break out downwards. A very wild loose megaphone could mean a squeaker new high but no genuine breakout into a melt-up.