This is What I’ve Been Assuming Would Happen Since Yesterday’s Bounce
Since there was nothing on the chart that required the bounce off yesterday’s low, I’ve been expecting the green megaphone scenario shown in the chart above, and this scenario may still play out.
Today looked crashy, but yesterday looked so bullish that people were buying SPY calls in droves and ridiculing bears on Twitter. That’s how megaphones always look.
But now the price is so close to the VWAP of the navy blue megaphone in the chart above that the price may just crash straight to it. There’s a new falling wedge (gray on chart below) that needs a lower low, and a lower low could take the price right to that VWAP at 2011.
One More Wave Down in Falling Wedge Could Take Price to 2011 VWAP
And that would make sense because after a down day like today you’d typically see an echo wave down overnight.
Then it’s a question of what happens at the navy blue megaphone VWAP at 2011. There’s a mandatory retrace target farther below at 1955, with a retrace all the way to 1937.50 likely. Then the price would likely retrace to at least the navy megaphone VWAP at 2011.
If ES Gets Sucked Down to 1937.50, a Retrace the Rest of the Way to the October 15 Low (Green Scenario) Becomes the Most Likely Scenario
But if ES fails to put in a new high before the move to 1937.50, it will have failed to set up a breakout from its 3-year price channel for after this retrace. That would make the most likely scenario a crash all the way back to the October 15 low.
I have a hard time believing this scenario heading into opex, an FOMC meeting, and the holidays.
The 2011 level is the line in the sand for me, and if ES bounces there it’s likely going all the way for the navy blue megaphone top.