ES Megaphone Welter

ES Red Flat-Topped Megaphone

ES Red Flat-Topped Megaphone vs Blue Megaphone

First, ES has nothing that even resembles a legal top on the daily chart yet.

Second, ES is trapped in a welter of megaphones inside megaphones within its trading range since the March 1 high. No way it escapes this mess easily.

ES has a kinda sorta flat-topped megaphone on the chart (red) and has put in a false breakout through its top at roughly the March 1 high.  That would usually mean a trip down to take out the formation low (green scenario) before a breakout through the top to morph the whole mess into the blue megaphone.

Or ES could still be working on getting straight to the area of the blue megaphone top (purple scenario).

There’s a small rising megaphone on the chart out of the April 17 low that didn’t top properly with a head and shoulders inside the formation.  That would usually mean we see another stab through 2400 even if the flat-topped megaphone is in play (orange scenario).

The proper attitude toward any move within the recent trading range right now is high skepticism.  The only exception would be if a price channel meltdown sets up.  No sign of that yet.

 

18 Comments (To enlarge images, right click on image & then click "view image") → ES Megaphone Welter

  1. ewtnewbie

    RTH did NOT violate the 2350-2361 support zone on the ES drawn from 2317.75-2404.50 (came close at the open) so if RTH rules, you gotta figure the longs still have the ball until they prove otherwise. Snake Oiler got his tag of 2345 o/n to close that gap in the futures (overnight repair of an overnight problem, makes sense). I have a prominent POC around 2372-2373 from yesterday, so that could be the ultimate target today once we find acceptance using yesterday’s RTH low of 2354.75 and the VAL of 2359.50. Looks like we’ve managed both those. Took my last runner short ES off once 2361 was tagged on this push, so I’ll look for an entry based upon price action from here. Have 10 june calls and 2 puts that expire tomorrow. GLTA!

    Reply
  2. ewtnewbie

    Ok, here is what I have for y’all…
    ES has 2354-2364 support, YM 20575-20660, and NQ 5558-5615. I know that last one is a big support zone, but that is what it is. I’m watching ES and YM for clues, not so much NQ. I got stopped out on the NQ bull hope anyway at 5595 from 5609. Ce la vie.

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    1. snake oiler

      ewt, there should be a ton of orders at 2345. The last time we were there, shorts got reeled in for usd 3 billion. But let’s see if we can put in at least one good fake shoulder out during the stampede down.

      Reply
      1. ewtnewbie

        Yup, 2345 ES is likely a big support zone, but I’m not sure it gets there to let them cover at even. I think after holding from 2345 to 2400, they may just cover at the Fib level from 2317.75-2404.50 at 2351 level. I’m using 2322.75 as that is the low of the prior wave up, but Algos could grab 2317.75 if they wanted to and have a “big fake” on their hands. YM has already hit this level today though, so it would be interesting to see YM break the levels and leave the ES intact. Bought a couple handfuls of June 242 calls for 50 cents at the close as a lottery play. If I can sell of 7 or 8 and get my capital back tomorrow or Friday, I’ll just let the rest ride for a big win or break even. I think Friday has the potential to get very, very interesting. I’d love to hear Moe’s take on this since it is OpEx week after all. There is tons of puts living at every even level from 230 to 240 according to my Fidelity OI summary. 230 has 216k with 119k trading today, 231 has 81k, 232 has 131k, 233 has 114k, 234 has 127k, 235 has 231k with 140k traded today, 236 has 89k, 237 has 139k, 238 has 90k, 239 has 64k, and 240 has 178k. Seems like 230 and 235 offer pretty serious put support and calls get thick at 235 and 236 with 240 and 241 very big. Any thoughts from someone that believes in pinning and option manipulation besides this rookie? Thanks in advance.

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        1. Sam

          I have an idea. I was holding 238 puts short for .20 before the fall. Luckily I had a 237 put against it. End of day 238’s was trading for about 2.0, so my guess is they are going to rally towards that and crush volatility as much as possible. I hope that it rallies all the way to the close on thursday. Ill close the 238 for whatever it is going for in the last half hour. Hope for a gap down on Friday.

          Reply
          1. ewtnewbie

            After a large down day like this, I’ve found through looking at history that tomorrow will very likely have a lower low, but from there, a push upwards is generally very possible (watch out of the 50-day MA overhead now). My belief is that it is Mom and Pop that are seeing headlines, logging into their Fidelity and Schwab accounts and seeing losses, and placing a sell order that kicks off the day into the red only to watch the savvy traders and institutions buy, buy, buy into that selling at key locations and at their usual action times. I’m actually hoping for a push lower at the open and allow me to sell some nice premium for income on some much lower puts expiring Friday where I would want to own SPY and then covering them on that bounce to remove risk. Could see Friday being a “sell it all” kinda day with delta hedging and the whole kit and caboodle going on because of a rumor of impeachment or some such nonsense. I’ve learned to only try to catch the falling knife with options to minimize losses!

            Reply
        2. snake oiler

          ewt, banks don’t normally trade single stocks, so I only know index options, but the subject of pin probably never came up more than once a year. Much deeper markets. I could flip a couple hundred futures contracts and still not have my gamma position P&L budge. I think it’s possible but certainly not worth the risk from a practical standpoint.

          According to your figures, almost all of the 230 strike traded yesterday on a vix spike. so there’s probably a large open interest of speculators long the 230. That means the market makers have a large short gamma position at 230 they have to dynamically hedge. We’re assuming the speculators (most likely, the public) are not going to engage in dynamic hedging. When you have a large long gamma position, it’s like a long straddle; it’ll generate long deltas on the way up and short deltas on the way down. So the market maker sells on the way up and buys on the way down. the market tends to stick to that strike, i.e. sticky strike. With a short gamma position, it’s the opposite; you can’t wait for limit orders to be filled, you need to shoot market orders to defend your risk band. so, without knowing anything else, we know the market will get whippy around 230.

          Reply
            1. snake oiler

              to be clear, i have no idea what the historical open interest is in those higher strikes, so just as likely that the large short gamma position is higher, and the 230 was used to hedge their extra inventory from all the put buying yesterday. most market maker positions will look like a butterfly with extra contracts in the wings.

              Reply
              1. ewtnewbie

                Sure. they are forced to use some kind of risk management and if they sold a crap load of 235 236 strikes yesterday, buying some 230-234 or such makes sense to make sure Armageddon doesn’t taken out their trading capital, their firm, etc… The nice thing is that premium must have come in today, so they at least made that on the sell side.

                Reply
            1. snake oiler

              “old” farmer. just kidding, Moe!
              fancy talk gets us nothing; it’s about applying it to extract edge, and the edge may be small. that’s what professional gamblers know better than traders who can luck out. but every little thing adds up.

              Besides, all this stuff is in the public domain. hat tip to the awesome twitter troll nassim taleb. he wrote the best options book ever, “dynamic hedging” when he retired. It’s one big F.U. to wall street cuz he was never going back. You can get plenty of lulz reading his sidebar stories ridiculing risk management bureaucrats.

              Reply
    1. Sam

      On second thoughts Im rooting for green scenario. If it gets there by tomorrow it is a sweet short setup. I hope whoever is still short can ride through one day of pain and dont fight it.

      Reply

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