Gold Inverse Head and Shoulders Needs a Right Shoulder

gold inverse head and shoulders

Gold is Forming a Head and Shoulders at 1200 Before a Right Shoulder Attempt on its Potential Inverse H&S

Gold is back at 1200 at the neckline of its potential H&S at VWAP of the big pink megaphone.

Gold needs at least a pullback to the blue megaphone VWAP. That pullback would put a larger potential inverse head and shoulders (red neckline) on the daily chart.

However, gold has now been working on its H&S top for 3 1/2 months.  That’s a very long time to work on a top before a simple right shoulder dip.  Usually such a protracted top would mean that the inverse H&S right shoulder is going to fail and the big inverse H&S is going to break out downwards (purple scenario) with a target of roughly 750-800.

Another thing you have to watch out for is a megaphone right shoulder on the H&S with a neckline at 1200.  A megaphone right shoulder would usually mean a squeaker new high before a larger H&S completes and breaks out downwards.

New All-Time High the Easy vs Hard Way

ES could Go Straight for a New All-Time High or could Put In a False Top Here

ES could Go Straight for a New All-Time High or could Put In a False Top Here

ES would usually go for a squeaker new all-time high here (purple scenario) before a deeper pull-back.

But it could also put in a false top within the orange and purple megaphones on the chart (green scenario) before putting in a new all-time high.  Megaphone false tops sometimes form at the level of previous megaphone highs.  When they do, the price retraces to the megaphone VWAP (in this case, at roughly 2050) and then takes off in a melt-up for the megaphone top (or at least a new megaphone high).

A new all-time high is likely before any bigger pullback because of a formation on the daily and weekly charts.

A New All-Time High would Confirm a New 5-Year Rising Megaphone

A New All-Time High would Confirm a New 5-Year Rising Megaphone

A new all-time high would confirm a new 5-year rising megaphone on the ES daily and weekly charts.  Typically a price will pull back to retest a rising megaphone bottom soon after the formation confirms.  The price would usually break the formation bottom a bit before continuing up to another new high.

Sometimes a price will consolidate between the high and the rising megaphone bottom, forming a triangle, before breaking out.  In this case, expect to have to redraw the formation bottom two or three times before the price finally breaks out into a significant move up.

 

And ES Stalls Right at its Megaphone Top

ES Made It to its Megaphone Tops & Started to Stall

ES Made It to its Megaphone Tops & Started to Stall

ES has just completed a megaphone 5th-wave melt-up to its pink megaphone top.  It’s also back at its blue double-headed inverse H&S neckline, less than 13 points from a new all-time high.

ES would usually form a head and shoulders top here on top of the pink megaphone before heading down to the megaphone bottom.  The first attempt at a left shoulder is in, but the first attempt is not usually the real left shoulder.

A new all-time high on ES, assuming we get one in the course of completing a top up here, does not necessarily mean a new all-time high on SPX and SPY.  SPY already put a new all-time high on the chart in April.  It doesn’t need another new high.

SPX is pretty far from a new all-time high–roughly 46 points away.  It may not get to a new all-time high, but that doesn’t matter.  A new high on ES will still give us our next trading set-up.

The odds of the green scenario on the chart above playing out are less than 5%.  The purple scenario is an overwhelming favorite.

A New All-Time High would Confirm a New 5-Year Rising Megaphone

A New All-Time High would Confirm a New 5-Year Rising Megaphone

A new all-time high on ES would confirm a new 5-year rising megaphone on the daily and weekly charts. A price will typically retrace to the new formation bottom before continuing up. You can short on a genuine breakdown back through the level of the old high.  Then we have to hope we don’t get bogged down in still more topping price action.

The target is roughly the rising megaphone bottom.  Usually ES would break the bottom by enough to make you redraw the bottom line.  You can go long again on the breakout back up through the original bottom line.

Sometimes the price will form a triangle after the new high before continuing up (purple scenario).

After a retest of the red rising megaphone bottom, or the purple triangle consolidation, the technical target will be roughly 300 points higher, but we will be looking to exit at the top of the head of a head and shoulders.

 

Back at 2080, New All-Time High Likely

Megaphone to Squeaker New High vs Breakout to Significant New High

Megaphone to Squeaker New High vs Breakout to Significant New High

ES has been sucked back to the all-powerful level of 2080, where it spent most of 2015.

It’s back at the neckline (blue) of a double-headed inverse H&S, but it’s also near the likely top of a megaphone right shoulder on the H&S on the chart (neckline near 2025).

It could put in a small right shoulder here for a big breakout from the inverse H&S (green scenario).  But it’s more likely to start a megaphone across 2080 to swing the price to a slight new all-time high to eat stops and put a double-headed head and shoulders on the chart (purple scenario).

Even a squeaker new high would confirm a new 5-year rising megaphone on the daily and weekly charts.

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

ES would typically retest the new rising megaphone bottom after confirming the formation. That retest would typically break the bottom by a modest amount and force a redraw of it. Sometimes the pullback will form a triangle that forces two or three redraws of the rising megaphone bottom.

Then ES should take off for another new all-time high. The technical target would be roughly 300 points above. There are ways ES could greatly shorten that move, but I’ll deal with that in another post.

Gold Bounce Coming Up Before Retrace to At Least 1125

Gold is Completing a Rising Megaphone (Red) and H&S for a Required Pullback to Blue Megaphone VWAP at 1125

Gold is Completing a Rising Megaphone (Red) and H&S for a Required Pullback to Blue Megaphone VWAP at 1125

Even if gold is headed for a major melt-up to the top of its pink megaphone, it would almost always retrace to its blue megaphone VWAP at 1125 first.

That pullback will put a huge potential inverse H&S on the chart (navy blue neckline).

Gold could take a while before breaking out through that neckline by forming a triangle right shoulder (orange scenario).

But there’s also a very bearish scenario for gold.  The multi-month H&S at the pink megaphone VWAP before a simple dip to the blue megaphone VWAP would usually mean that inverse H&S right shoulder will fail, with gold about to break out downwards from the pink megaphone (purple scenario).

The purple scenario would target roughly 800.

Pre-Holiday Panic Buying

ES Double-Headed Inverse H&S (Pink Neckline) Targets a New All-Time High

ES Double-Headed Inverse H&S (Pink Neckline) Targets a New All-Time High

ES consolidated across 2080 for most of 2015 and it is highly likely to head there now. Any kind of pullback from 2080 will put a double-headed inverse H&S on the chart very similar to the double-headed inverse H&S at the February bottom.  A breakout through its neckline at 2080 would target a new all-time high.

There’s also a H&S with a megaphone right shoulder on the 60-minute chart, which would usually mean a squeaker new high for the move out of the February 11 low, which would mean a new all-time high, at least on ES.

There are so many smaller megaphones and other trading formations on the chart that ES could put in a pullback to 2050 either from 2080 or at almost any time before reaching 2080.

A new all-time high would put a new 5-year rising megaphone on the ES daily and weekly charts.

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

ES would typically retest the new rising megaphone bottom after the formation confirms with a new all-time high. It could also put in a triangle between the new high and the formation bottom before continuing up.

Both a retest of the bottom or a continuation triangle would usually break the formation bottom by a small number of points. A triangle would usually require you to redraw the bottom 2-3 times.

Stuck at 2050, but 2080 is Likely

ES could Keep Megaphoning Across 2050 Until it Breaks Out Downwards, but it's More Likely to Return to at Least 2080

ES could Keep Megaphoning Across 2050 Until it Breaks Out Downwards, but it’s More Likely to Return to at Least 2080

ES spent the night consolidating across its pink megaphone VWAP at roughly 2050. It could keep megaphoning there indefinitely before breaking out downwards, but 2080 is so important that it’s likely to at least retest that level too.

If ES makes it to 2080 and reverses there, it will be putting in a flat-topped megaphone (blue) failure and likely collapse to 1935-1950.  (Note that the purple scenario would likely be more complicated than drawn.)

If ES can make it through 2080, it should make it to a new all-time high before a significant pullback.

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

A new all-time high would confirm a new 5-year rising megaphone on the daily and weekly charts. After the new all-time high, a retest of the formation bottom would be typical, usually with a small break of that bottom.  We could even see a continuation triangle form between the new high and roughly the formation bottom, with the bottom getting redrawn two or three times before the price truly breaks out of this long consolidation.

Could Have Formed a Price Channel for a Melt-Down – Didn’t

ES is Stuck in a Megaphone Inside a Megaphone Inside a Megaphone Inside a Megaphone - Could Have Set Up a Breakout From It All But Didn't

ES is Stuck in a Megaphone Inside a Megaphone Inside a Megaphone Inside a Megaphone – Could Have Set Up a Breakout From It All But Didn’t

ES is stuck inside a megaphone inside a megaphone inside a megaphone inside a megaphone–and I’m simplifying.

It’s put in fake breakouts through three H&S necklines (red).

It could have set up a price channel overnight and be heading down to break out from all of it–but it climbed too far, canceling the potential melt-down set-up.

It could still get to 2000-2010ish (purple scenario) but it could also set up a Sornette melt-up to a squeaker new all-time high (green scenario).

It could also start a new megaphone near 2050 to draw a larger triangle right shoulder (blue scenario) on the potential H&S on the chart–which is not yet dead.  The blue scenario would almost always break out downwards into a big move.

The purple and blue bearish scenarios would be limited to a move to the orange megaphone bottom, or a little bit through it to form a bottoming formation.  The faster the move down and bigger the bottoming pattern, the more likely that the orange megaphone would ultimately break out the top.

The green scenario would likely ultimately lead to a deep pullback as well, with the most likely target a break of the bottom of a newly-confirmed multi-year rising megaphone on the daily and weekly charts.

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

A New All-Time High on ES would Confirm a 5-Year Rising Megaphone (Red)

On twitter yesterday a chart of AAII investor sentiment was getting passed around that showed individual investors as bearish as at the February 11 low.