ES Break-In and Breakout

ES is Back Inside Its Navy Blue Megaphone & has Broken Out of its Orange Rising Megaphone

ES is Back Inside Its Navy Blue Megaphone & has Broken Out of its Orange Rising Megaphone

ES is back inside its navy blue & light blue megaphones and has broken out of its orange rising megaphone after a legal top.

That means we ought to see at least 2150 before we see ES break out of the navy blue megaphone again, and we could see the navy megaphone bottom. If ES makes it to the navy blue megaphone bottom, we could even see the megaphone break out downwards into a huge correction after a retrace to its VWAP.

ES has Formed a Falling Megaphone (Red) that will Eventually Need a Retrace to its Top

ES has Formed a Falling Megaphone (Red) that will Eventually Need a Retrace to its Top

Big megaphone moves down often start with a price channel melt-down set-up. But instead, ES has set up a falling megaphone (red on 60-minute chart) since its March 16 retest of the high.

ES could form a price channel inside the red falling megaphone and melt all the way down to 2150 inside it (green scenario).  Or the move to 2150 could be a lot messier, with ES forming an inverse H&S bottom around here before retracing to the red falling megaphone top and heading down again (purple scenario).

If we get the purple scenario, it would likely be slow moving enough for the move to the red falling megaphone top to be another retest of the big navy blue megaphone top from inside.

Anyway, at this point you should be short as long as ES is inside that red falling megaphone.  If you don’t mind hanging on through retraces and you’re not playing something time sensitive like options, you could be short unless ES breaks back out of the navy blue megaphone top.

This would usually be a strong short set-up.  The only thing nagging at me about it is that ES failed to complete a potential extension in the orange rising megaphone and put in an indecisive, awkward top on the navy blue megaphone.  That means you have to take your stops seriously in case ES heads up one more time to put a bigger top up there.

ES Confirmed End of Part 2 of Sornette Bubble Overnight

They Took ES Down Through 1897 & 2-Year+ Rising Wedge Bottom Overnight

They Took ES Down Through 1897 & 2-Year+ Rising Wedge Bottom Overnight

They took ES down as expected through its critical 1897 level last night.  That means this correction was bigger than the last significant correction, and that means the Sornette bubble is in the middle of a 4-6 month topping pattern.

They also took ES through the bottom of its 2-year+ rising wedge in a brief fake breakout that got bought.

ES is now back at the VWAP of its gray bottoming megaphone.

The reentry into the 2-year+ rising wedge after the fake breakout was a set-up to get long.  But they may take it down one more time to give SPY a fake breakout and complete a falling wedge on ES (green scenario on chart).  Then you could go long on an upward breakout from the falling wedge.

You can also go long on a breakout through  the highlighted orange trend line on the chart, or on a breakout upwards through the navy blue megaphone VWAP at roughly 1920.

The next wave up could top in the ES 1950-1965/SPY 195-196.80 area or it could go all the way to one final new all-time high. Either would meet the rules of everything going on in the chart.  I like the new all-time high scenario only because it makes sense in poker terms.  There’s a short-squeeze there for the taking, big money still needs to complete switching sides, and I think they’ll go for it.

We should see this wave up cling pretty tightly to the bottom of the 2-year+ rising wedge and we would usually see a couple more false breakouts through that wedge bottom before the real one.

SPY & ES Stop and Potential Melt-Up Set-Up

If ES Stays Above Yesterday's Navy Blue Megaphone VWAP, It's Setting Up a Melt-Up

If ES Stays Above the Navy Blue Megaphone VWAP, It’s Setting Up a Melt-Up

If ES avoids breaking down through the VWAP of yesterday’s megaphone (navy blue on chart), it’s likely setting up a rising megaphone melt-up to complete the move up from the April 13 low (green scenario).

That would mean a melt-up to the top of the gray megaphone, large orange megaphone, and dark blue rising megaphone. The move would complete all mandatory retraces on the chart.

If ES breaks down through the navy megaphone VWAP, it’s going for the navy megaphone bottom and VWAP of the red bottoming megaphone (lavender scenario).

If the green scenario occurs, you want to exit longs on a topping pattern up there unless you’re trading something like a 401k where the number of trades is restricted, or you just don’t like to play short-term moves. The move down out of rising wedge tops is usually a crash, and this could be the start of the Big One.

However, odds are that this will still not be the Big One, and trend traders will be able to get out not far down even if the Big One is confirmed.

Sornette Bubble Update

ES is at Top of Silver Bottoming Megaphone

ES is at Top of Silver Bottoming Megaphone

ES is at the top of its silver bottoming megaphone. It may break out here. It may need a retrace to VWAP before an upward breakout. (There’s an ambiguous retrace in the formation.) Or it may go all the way for the megaphone bottom again before breaking out upwards.

It could even break out downwards, but I’m pretty sure it will break out upwards to go for its mandatory retrace to the ES and SPY topping megaphone VWAPs.

You’ll know it’s complete and breaking out upwards when the price gets through the navy blue megaphone VWAP.

Assuming it breaks out upwards, it’s what happens at the VWAPs of the topping megaphone at the April highs that will be interesting.

ES & SPY Decision Point Coming at Level of Right Shoulder Top

ES & SPY Decision Point Coming at Level of Right Shoulder Top

John Hussman posted back in mid January that the SPX had reached singularity, or the point in its Sornette bubble formation where it was supposed to crash. He was mathematically correct. However, only 60% of Sornette bubbles crash at that point.

The other 40% go on to spend roughly 5-6 months moving sideways, usually forming some kind of topping formation. Some of these topping formations break out downwards. That was the case with the 2011 crash. But some of these topping formations break out upwards for one final big bubble surge.

ES and SPY formed the top of the left shoulder of a potential H&S right around the time the market reached singularity. Now we’re heading into the potential right shoulder, with a mandatory retrace to right about the level the right shoulder should top.

We should see some kind of megaphone or other topping formation up there. If the price breaks out upwards from that formation, the market’s going for the final bubble surge even though there will be some messy retraces after the breakout upwards. If the price breaks out downwards, we are likely headed into a crash.

In terms of the trading formations on the chart, this would represent a 5th wave topping formation at or across the 5-month megaphone VWAP. A downward breakout from that formation would represent a partial 5th wave. That would be a set-up for the SPX to crash through the megaphone bottom.

If the market breaks out upwards, this was a false top or consolidation pattern on the way to the megaphone top at over 2000.