ES is back inside the top of its navy blue year long megaphone, which is also a rising megaphone (gray bottom).
ES needs a retrace to the light blue megaphone VWAP and rising megaphone bottom to be legal for an upwards breakout from all of these trading formations.
ES could also correct all the way to the navy blue megaphone VWAP or bottom. And after a retrace to the light blue megaphone VWAP, ES could break out downwards from the navy blue megaphone all the way to year-2011 territory.
The size of the impending correction depends on how big and prolonged a topping pattern ES puts in at the navy blue megaphone top.
The Orange Triangle is Key to the Next Trading Set-Up
ES is trying to form a triangle (orange on chart) across the navy blue megaphone top. Right now, ES is likely heading up to retest the navy blue megaphone top from inside and redraw the orange triangle top line.
If ES completes the orange triangle and breaks out downwards from it, it’s likely going for the light blue megaphone VWAP at roughly 2150 and would be a favorite (though not guaranteed) to reverse there for a big move up (green scenario).
If ES instead breaks out upwards through the navy blue line again, it’s likely going for the red megaphone top to put a much bigger topping pattern on the navy blue megaphone (light blue scenario).
A big topping pattern here would likely lead to a correction all the way to the navy blue megaphone bottom.
If ES breaks out to the red megaphone bottom before completing the orange triangle, we’re likely in the orange scenario and ES could be stuck in the red megaphone for a long time. The orange scenario would essentially redraw the rising megaphone on the chart.
Over the weekend I’ll post a super long-term chart that shows all the outs the market has left for itself here.