For a while it’s been clear that Jim “Paint the Chart” Bullard of the Fed has been trying to paint a triangle on the SPX daily chart. Or at least it’s been clear that to get through 1800, the market was going to have to get through him.
But Bullard didn’t seem to want a blow-off top on the chart either. He seemed to want to paint plenty of base on the SPX daily charts–likely in the form of a triangle–for a natural breakout upwards once the long-promised recovery actually got started.
In fact, right on cue last week, as the market approached its triangle top, Bullard showed up to say that the April FOMC meeting was “live” for a rate hike.
But on Tuesday, Yellen stepped all over Bullard’s jawboning of last week (and the little pre-Easter sell-off that followed) with a speech heavy on worldwide weakness. The market went into lift-off without even having put a decent retest of 2000 on the daily.
Now, even if the market can manage to get back to 2000 for that retest, it will be putting a potential Sornette melt-up set-up on the daily (green scenario in chart below) as well as a giant potential rising megaphone (red in chart below).
The red rising megaphone would be about to start its biggest fastest wave up.
And with the SPY and SPX Bollinger Bands tightly compressed on the monthly chart, the market is ready for a big move.
There are still mandatory retrace targets far below. But markets can put off retraces for a very long time, simply by morphing rising wedge tops into price channels into rising megaphones into larger rising megaphones. And if ES sets up the red rising megaphone in the chart above, all of the mandatory retrace targets can wait until that formation completes.
A typical way for the red rising megaphone to complete would be with a melt-up to the formation top, followed by a H&S top within the formation that would take the price to a higher high.
There is still one last chance for ES to reverse before a blow-off top set-up. After a series of failed attempts at topping megaphones, SPX has put a rising wedge (blue) on the daily. The rising wedge has broken out and is trying to form a head and shoulders with a neckline at roughly 2000 and a target of roughly 1920-1930.
Since 1920-1930 is roughly the level of the VWAP of the big megaphone off the August 24 low, a head and shoulders top here would likely set up a move to that level to begin a new megaphone (purple scenario) to hit all mandatory retrace targets and keep the market moving sideways for a while.