ES Formed a Triangle (Pink) at End of Day
ES ended the week forming a triangle. If it breaks out downwards, that triangle would be the top of a head and shoulders top at the navy blue megaphone top. If it breaks out upwards, it’s likely going to form a bigger head.
It turns out that the Eurogroup agreement continues to suck for Greece, but it was great for a short squeeze.
ES would usually retrace to at least the navy megaphone VWAP here. Then it would be legal for a breakout upwards.
It could also go for the megaphone bottom to set up a breakout downwards.
An upward breakout from the navy blue megaphone would set up the green scenario on the chart below:
ES Long-Term Scenarios
Essentially the green scenario represents Grexit fears put aside for long enough for the market to put in a blow-off top with the help of ECB QE. That is now the scenario with the highest odds.
The green scenario would also be a classic Sornette bubble set-up launching into the melt-up phase, with the lumpy top occuring in summer of 2014 through October 15, 2014, the first bobble at the subsequent touch on the price channel top and subsequent dip, and ES heading into the second bobble now. A new high after the second bobble is the set-up to bet the bubble.
It’s also a classic price-channel set-up–a breakout into a melt-up channel.
The purple and orange scenarios would be launched by a downward breakout from the navy blue megaphone. If we’re going to see the purple scenario (a new high within the 3-year price channel after the dip to the channel bottom) we’ll see a megaphone bottom form at the price channel bottom. This megaphone will likely break the price out of the price channel a time or two before heading up to a new high.
Update: Here’s the classic Sornette bubble set-up (below), highlighted.
Classic Bubble Set-Up