Opex Megaphone Across 2000 Pin
ES Opex Megaphone (Red)
Late last Tuesday, ES started forming a megaphone with a VWAP a little below 2000. It was a classic opex megaphone around a classic opex pin.
Then SPY went into opex Friday with a ridiculously high put-call ratio of 2.11. That would almost always mean a Friday melt-up, and that’s what we got.
No Matter the Route, ES is Likely Heading for the Purple Megaphone Bottom
The melt-up formed a price channel (silver) that broke out into a melt-up channel (orange). Now, ES can continue up the new channel (or a steeper one) to the red megaphone top, or break out downwards from the orange channel to try to form a topping formation (such as a head and shoulders) at or across 2000.
If ES manages to form a head and shoulders with a neckline at roughly 2000, a downward breakout from the H&S would make ES legal for a downward breakout from the red megaphone too.
The target would be the bottom of the larger megaphone (purple on chart below) in which the red megaphone formed.
ES Megaphone (Red) in Megaphone (Purple)
Note that on a 60-minute chart the green scenario would not look like a breakout from the red megaphone.
The green or purple scenarios are by far the favorites, which means the major question is whether ES continues melting up at the open Sunday night (purple scenario), or whether it starts back down to 2000 to speed up its trip to the purple megaphone bottom.
After reaching the purple megaphone bottom, ES would usually retrace to at least its VWAP and will probably put in one final trip to its top.
This is All Happening at a Critical Point in a Three-Year Price Channel
ES & SPY are at a Critical Point in Their 3-Year Price Channels (Blue)
The purple megaphone has formed at a critical decision point in the ES/SPY 3-year price channel (blue on chart). The critical decision is whether to break out into a steeper channel (which usually means a breakout into a series of increasingly steep melt-up channels) or to start a fast or protracted top.
ES and SPY could have nicked the channel top before these partial retraces. That would have set up a breakout into a steeper channel.
But ES and SPY have now failed twice to do this. That means the odds of the melt-up channel set-up happening are getting low.
Instead, ES is likely either forming a fast top before a plunge (green scenario on chart directly above) or the first part of a protracted channel top before a plunge (purple scenario).
Either way, ES and SPY should pierce the bottom of the 3-year price channel on the move to the purple megaphone bottom.