Short Set-Up to At Least 2150, But Keep an Open Mind a Little Longer

ES is Back Inside Its Navy Blue Line - That's a Short Set-Up to At Least 2150

ES is Back Inside Its Navy Blue Line but Not Yet Broken Out of its Orange Rising Megaphone

ES is back inside its navy blue megaphone/rising megaphone top. That’s a short set-up for a move to at least the light blue megaphone VWAP at 2150 (green and purple scenarios).

But ES hasn’t broken out of its orange rising megaphone yet and the recross of the navy blue line is still very small, so I would keep an open mind and a tight stop until ES has retested the navy blue line from inside and broken out of the orange rising megaphone.

If ES breaks back out of the navy blue line, the orange rising megaphone is extending and we’re in the blue scenario.  In the pre-HFT days, that would have been a rare occurrence, but the bots these days like to do small ritual breaks of important lines before reversing.  In that case, the price move could be bigger than I could fit on the chart.

The House vote on Ryancare is Thursday.

ES Still at Price Channel Top (Updated)

ES is Still Working on a Megaphone at the Top of its Navy Blue Price Channel

ES is Still Working on a Megaphone at the Top of its Navy Blue Price Channel

ES is still working on yesterday’s megaphone (red on chart) at the top of its new price channel (navy blue on chart), getting close to the top of its bottoming megaphone (highlighted navy blue line).

The megaphone tells you the market has already run out of steam. There’s too much selling into any buying triggered by technical breakouts or stop-eating for the market to continue moving up. So the market-making bots are swinging the price in a megaphone until they trigger some new action.

Because we’re near the top of the recent trading range, the most likely new action to get triggered is more stop eating.

Update:  It’s also possible that the overnight dip is all the retest of the red megaphone VWAP that we’re going to see.  In that case, ES could just break out upwards.  But I don’t see how it can break out very far upwards with the top of the navy blue megaphone right there.  I think the top of this wave will be a crawl between that megaphone top and the price channel top.

Short-Term Set-Up (Updated 3x)

Endiing Diagonal / Falling Wedge Across Megaphone Bottom = Buy on an Upward Breakout

Ending Diagonal / Falling Wedge Across Megaphone Bottom = Buy on an Upward Breakout

An ending diagonal should complete with either a small false breakout through the bottom or by dying out in the formation middle.  Then you would buy an upward breakout.

If the low before an upward breakout is an exact touch on the bottom, you’ll probably see a sideways formation after breakout.  Then you bet the breakout from that.

If this keeps going down it’s like the 2011 flash crash or 1987.  Those didn’t honor any formation bottoms or mandatory retraces.

But most likely we’ll get the upward breakout, and most likely after that we’ll get a new all-time high, and that will be the time to get short.

Update 1 & 2:  Intraday NYMO has reached -88.  Could have some great NYMO set-ups by end of day.  If NYMO reaches -100 by end of day (doesn’t have to close down there), a rally to VWAP without a new all-time high is likely.  You’d short at the purple megaphone VWAP.

If NYMO is -80 or lower at end of day, but never reaches -100 intraday, it’s good for a fast melt-up, likely to a new all-time high, with a lower low likely within a couple of weeks.  This would mean the market’s topping faster than expected.

Update 3:  Breakout.  The only concern is if it takes a lot of time moving sideways, working off the excessive bullishness without moving significantly upwards, then breaks out downwards from the consolidation.

Breakout Scenarios

Breakout Scenarios

Setting Your ES or SPY Stop

I'd Stay Long Through the Purple or Green Scenario, but Not the Light Blue One

I’d Stay Long Through the Purple or Green Scenario, but Not the Light Blue One

ES has done everything it needs to do to set up a short-term bullish move into a bigger head for a head and shoulders formation.  Now it needs to retrace to its purple megaphone VWAP at roughly ES 1959/SPY 196.50 to get legal to move further up (green scenario), and it seems to be completing a small megaphone top before that dip.

Prices will often retrace a bit further when there’s a major VWAP a bit further below, and there is one now at ES 1952ish/SPY 195.90.  I’d stay long through a retrace to there (purple scenario).

The green or purple scenario is most likely right now.

But if ES and SPY start seriously moving through that level, or if they form megaphones at that level and the megaphones break out downwards (light blue scenario), I would not stay long unless you’re managing money in a 401k where you are limited in the number of position changes you can make.

The next target would be the bottom of the purple megaphone at roughly ES 1920-1925, and with other megaphones not much further below, ES and SPY may go for those before a retrace.  We could be looking at a move to 1900 before a mandatory retrace to the ES 1959 VWAP level.

With the light blue scenario, the critical decision point is at that retrace to the ES 1959 VWAP level.  If the price breaks out upwards through there, it will be an upwards breakout from an H&S right shoulder and the move would be explosive.  If the price reverses there, it would put a complete H&S top on the chart.

SPY Price Channel Scenarios

SPY Could Dip to Roughly 127 to Set Up a New Price Channel (Gray) or Just Dip to the Bottom of the Purple Channel

SPY Could Dip to Roughly 193.21 to Set Up a New Price Channel (Gray) or Just Dip to the Bottom of the Purple Channel

SPY has definitely set up a steeper price channel to roll into.  What’s not clear yet is whether that channel will remain the purple channel on the chart, or whether SPY will dip past the bottom of that channel to roughly 193.21 and set up a different channel (gray on chart).  The gray channel is more likely.

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ES Melt-Up Set-Up vs. Head and Shoulders Leading to Crash

ES New Price Channel (Red) on 5-Minute Chart

ES New Price Channel (Red) on 5-Minute Chart

ES has formed a new price channel on its 5-minute chart.  Any small price channel like this suggests low volume and low passion.  The gentle slope of the channel is another factor that suggests this one doesn’t have much life left in it.

The price channel could start breaking out into a topping formation as early as overnight.

But look at the chart below.  There’s a second price channel on the ES chart (gray), comprised of very aggressive waves up and down, and running at a steep angle.  If this second channel contains the coming correction, this is one of my favorite set-ups for a wave that’s about to go into a melt-up.

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