Potential Sornette Melt-Up Set-Up

ES has a Potential Sornette Melt-Up Set-Up (Red Box, Purple Scenario) Across its Red Megaphone VWAP

ES has a Potential Sornette Melt-Up Set-Up (Red Box, Purple Scenario) Across its Red Megaphone VWAP

ES took a serious stab at the blue megaphone VWAP at 2362 yesterday. That’s all it needed to complete a top here and break out downwards past Tuesday’s low with an initial target of 2150.

But that serious stab at the blue megaphone VWAP put a potential Sornette melt-up set-up on the chart (inside red box).  Sornette melt-up set-ups typically break out upwards with a double bobble (purple scenario) that could break ES out through 2362 for a melt-up to the blue megaphone top and new all-time highs.

Sornette melt-up set-ups that fail usually fail in the second bobble when the price takes out the low of the first bobble. But you can’t count on getting a second bobble.  Sometimes the only place you can see a second bobble is on a two-minute chart.

If the Sornette melt-up triggers, the melt-up would usually take the form of either a series of price channels or a rising megaphone.

ES Appears to be Twining Up its Navy Blue Megaphone Top

ES Appears to be Twining Up its Navy Blue Megaphone Top Waiting for the Big Decision

Here’s what it looks like on the daily chart (from yesterday). If ES reenters the navy blue megaphone, it’s headed for at least 2150. If ES breaks out through 2362, it’s headed for new all-time highs and the price could go a lot farther than drawn on the chart.

ES is Mini-Plunging to Critical Decision Point at 2350

If ES Breaks Down Through the Red Megaphone VWAP at 2350 & Reenters the Navy Blue Top, It's Likely Going for At Least 2150

If ES Breaks Down Through the Red Megaphone VWAP at 2350 & Reenters the Navy Blue Top, It’s Likely Going for At Least 2150

ES has mini-plunged this morning through an important trend line on its 60-minute chart and is retesting a megaphone VWAP at roughly 2362.

It could turn up from here to another new all-time high.  That is the pink scenario and it could go a lot higher than I’ve drawn.  Any failure to reenter the navy blue line could result in a blow-off top.  I’ll post new scenarios if that develops.

If ES can get through 2362, the critical decision point is at roughly 2350, which is both VWAP of the red megaphone on the chart and the top of the navy blue megaphone and rising megaphone or price channel. The 2350 level should be a strong magnet for ES on this mini-plunge.

If ES breaks down through 2350, it would usually go for at least 2150 and could go as far as 1800 and set up an even bigger correction from there.

Note that even if ES is going to reverse at 2350, it would usually break that level a little to form a bottoming formation.  The question is whether ES can reenter that navy blue line.

 

Set-Up for Dip to 2150 Still Alive

ES is Retesting the Top of its Red Megaphone from Inside on the June Contract

ES is Retesting the Top of its Red Megaphone from Inside on the June Contract

ES is retesting the top of its red megaphone from inside on the June contract. That means Friday’s set-up for a dip to at least 2150 is still alive.

Again, a trip to the red megaphone bottom would take ES across the top (navy blue) of long-term megaphones and a price channel or rising megaphone and set up the dip to at least 2150.  Another upwards breakout from the red megaphone could put a larger head and shoulders on top of the navy blue line or launch ES into a price channel melt-up set-up and blow-off top.

Retesting Critical Line

ES is Retesting the Top of its Big Megaphone and Navy Blue Rising Megaphone/Price Channel

ES is Retesting the Top of its Big Megaphone and Navy Blue Rising Megaphone/Price Channel

ES is retesting the top (navy blue) of its big megaphones and rising megaphone or price channel. It’s a rising megaphone if you count the election night tail. It’s a price channel if you don’t.

It’s best to keep an open mind about tails, and just act on the price action from here.

If ES turns up from here, it’s making either a bigger topping pattern at the big megaphone top (purple scenario), or heading up into a price channel melt-up set-up and blow-off top (light blue scenario).

If ES recrosses the navy blue line, it’s likely going for at least 2150 and could go as far as the red megaphone bottom.  The green scenario, with a smaller top here, would be more likely to reverse at 2150 for new highs.  With the purple scenario’s larger top, we’d be more likely to see the red megaphone bottom.

If ES heads up from here into the purple vs. blue scenario, the critical decision point will be at the gray roll-up price channel top.

ES Topping Update

ES is Going for a Tag of its Megaphone/Rising Megaphone/Channel Top as it Works on a Likely Head and Shoulders

ES is Going for a Tag of its Megaphone/Rising Megaphone/Channel Top as it Works on a Likely Head and Shoulders

ES is trying for a retest of is red and blue megaphone tops and navy blue rising megaphone/price channel top  (all the topmost navy blue line).

If it can actually get there before another new high it could put in a very small right shoulder bounce before reentering the megaphones (orange scenario), which would likely mark the top before a dip with a target of at least 2150 and potentially the 1800 area.

But ES is more likely to go for another new all-time high before reentering those formations (green scenario).  The green scenario could be bigger and take longer than the way I’ve drawn it.

A faster, smaller head and shoulders top here would leave open the possibility of a breakout into a price channel melt-up set-up for a blow-off top.  In that case, ES would likely take a quick stab at 2250 and then blast off.  The target for that could be hundreds of points higher.

ES is moving too slowly for the blow-off top to be a likely scenario, but an event like fast approval of the Obamacare replacement bill could set off a move like that.

Rising Megaphone Upward Breakouts

DIA Long-Term Rising Megaphone with Price Channel Set-Ups

DIA Long-Term Rising Megaphone with Price Channel Set-Ups

Yesterday I posted DIA’s rising megaphone with a classic megaphone/head and shoulders topping and retrace scenario (above).

GLD Put in a Classic Top Before Retracing to Its Red Rising Megaphone Bottom

GLD Put in a Classic Top Before Retracing to Its Red Rising Megaphone Bottom

Gold put in a similar top before retracing to its red rising megaphone bottom. If it can break out through the bottom here, it will retrace to the red rising megaphone bottom.

AMZN Broke Out Upwards from its Blue Rising Megaphone

AMZN Broke Out Upwards from its Blue Rising Megaphone into a Rising Wedge

But rising megaphones don’t always complete in the classic way.  There are ways they can extend.  For example, AMZN failed to break out its blue rising megaphone bottom.  Instead it broke out the top and converted a classic head and shoulders top on the rising megaphone into a huge rising wedge top (red).

It will likely form a megaphone up here to complete the rising wedge.  This megaphone could break out in either direction once it completes.

AAPL Extended its Toop on the Blue Rising Megaphone

AAPL Extended its Top on the Blue Rising Megaphone

And AAPL, instead of breaking down through its blue rising megaphone bottom, converted its classic H&S top into a giant rising megaphone top that could extend as well.

These are not the only ways for rising megaphones to extend.  For example, any wave within a rising megaphone can extend to form an interior rising megaphone.  And a rising megaphone can put in a new high after breakout through the bottom, before retracing to its target, under certain conditions.

The point is that every topping formation can break out in either direction and every rising wedge or megaphone can break out in either direction.  There are always ways for moves to extend as the market gets new information that may challenge the assumptions that built a trading formation.

Potential Sornette Bubble Close-Up

If the Sornette Bubble Attempt is Going to Fail, It Will Happen in the Double Bobble

If the Sornette Bubble Attempt is Going to Fail, It Will Happen in the Double Bobble

There is a really good example of an attempt at a Sornette bubble happening right now after hours on ES.

The parts are labeled in the chart above.

If it’s going to fail and the triangle scenario is going to play out, it will fail in the double bobble, which will morph into a topping megaphone within the pink megaphone.

Little Sornette Bubble Off H&S Neckline

ES is Putting In a Little Sornette Bubble Move Off Its H&S Neckline

ES is Putting In a Little Sornette Bubble Move Off Its H&S Neckline

ES is putting in a little Sornette bubble move off its H&S neckline. It could retrace to the lumpy top area at ES 2066ish and then put in a Part 3 (green scenario), or it could retrace to the H&S neckline to form a smaller triangle along it (purple scenario).

Either way, this type of a bounce off the neckline suggests a short squeeze, meaning a rather small number of little-guy shorts closing out positions at the neckline, rather than big money buying.

It also suggests the H&S will break out downwards after some kind of sideways move here at or across the neckline.

Although I’ve drawn the sideways move as a triangle, it could also be a megaphone.

A genuine breakout through ES 2084ish would suggest a larger right shoulder triangle is forming.  Right shoulder triangles are bearish.