How The August 2015 Crash Moved Down Price Channels

The Crash Off the August 18 High Moved Down Price Channels

I keep posting about how an ES crash to the 1700 area ought to start with some kind of crash set-up.

The chart above shows how the crash off the August 18 high moved down a series of increasingly steep price channels, as almost all crashes do. ES rolled down into the pink channel according to old-timer price channel rules.

Then it broke out of the pink channel into the crashiest part of the move.

The August crash was interesting because it started with such narrow channels and because it put in the minimum number of alternating touches on the channel sides that would make for a complete move. According to old-timer rules for counting waves in a price channel, the channeled move ended with the August 25 low (above the August 24 crash low), which completed a bottoming megaphone.

ES formed a potential downwards price channel today on its 2-minute chart. The channel needs a lower low inside the channel to confirm, and I don’t know if it will.

If it does confirm, the channel will be in its critical decision wave, where the price either starts a bottoming pattern or sets up a breakout into a melt-down.

Often bear markets that start with crashes put in two crashes–an A wave crash, a B wave connecting wave, then a C wave to past the A wave low–before entering a protracted consolidation that eventually breaks out into the rest of the correction. The US Dollar Index ended its 2014-early 2015 melt-up with this type of ABC crash move. Gold topped in 2015 with the same kind of ABC move, though the C wave was smaller than the A wave.

ES has a potential megaphone on its chart that could stop a crash wave even if one gets started here. But it’s not absolutely required to complete the megaphone, as it has already completed the minimum requirements for an H&S top for the move out of the August 24 low.

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