Potential Price Channel Crash Set-Up
Trader Moe | Sep 06, 2015 12:03AM ET
Potential ES Price Channel (Red) Crash Set-Up
ES closed out the week with a likely falling megaphone (pink) on its chart to carry the price to roughly 1870. A bounce after that to the falling megaphone retrace target has a good chance of setting up a price channel (red) on the chart. The channel would be confirmed with a lower low, which would likely be a retest of the August 24 low.
However, since we had a NYMO close below -100 on August 24, ES has high odds of taking out the August 24 low, which means there’s a great chance of ES setting up a breakout from the red channel into a melt-down channel. A melt-down channel is likely to carry ES down far enough to make a new all-time high unlikely when it gets started on its next bear market rally.
Great crashes start with price channels.
The price channel crash set-up is not guaranteed, but there is a lot of other stuff to support it. For example, the pink falling megaphone suggests that the first two major waves down from the August 27 high will be roughly equal in length. That wouldn’t usually be the case if something like a falling wedge were forming. Instead, it suggests a target in the low 1700s.
For another thing, NYSE:FXI has a flat-bottomed ascending top megaphone on its chart that suggests China is about to move into its capitulation wave back to the 2009 low.
NYSE:SPY has a flat-bottomed ascending top megaphone set-up on its chart with a target of roughly 173.83. Plus, it has a rising megaphone target of 173.71.
SPY has a Rising Megaphone (Red) Retrace Target of 173.71
Plus, there’s a Sornette bubble retrace target of at least the 2011 high, with no major support before that level once SPY breaks out of the big H&S on its daily chart.
For the price channel to set up, the bulls have to keep showing up to buy the dip on the approach to the August 24th low. The most likely way for the market to avert the price channel melt-down scenario would be for the market to just melt straight down to the NYMO lower low. That kind of excess short-term bearishness would imply the market’s about to reverse to a new all-time high.
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