Trading Notes

It’s going to try here (8:30 a.m. Pacific Time) for another little Sornette mini bubble melt-up in yet another try to get to a new high.

Could instead form a little megaphone across ES 2124 and it could break out downwards.

9:17 a.m. Pacific Time:  If you’re playing along on this pre-holiday Friday, here’s where we’re at:

Friday Potential Megaphone vs Mini Bubble to Megaphone Top

Friday Potential Downward Breakout vs Mini Bubble to Megaphone Top

11:07 a.m. Pacific Time:  Back at VWAP after trip to megaphone top.  Can put in a double wave to the top or continue to the bottom.

Double Wave Up vs. Down

Double Wave Up vs. Down

Forgot to mention the alternate scenario, which is a breakout through megaphone top to new all-time high at top of larger megaphone.

The Super-Bullish Breakout to Top of Larger Megaphone Scenario

The Super-Bullish Breakout to Top of Larger Megaphone Scenario

The purple scenario, with a price channel and price channel breakout, would be the easiest to trade–just bet the price channel breakout after a retrace after a brief pierce.  Target would be new high.

The green scenario is more likely to stall out as a double wave to the little gray megaphone top, so would require judgment there.

11:28 a.m. Pacific Time:  That green scenario directly above would like be a retest of the top of a potential right shoulder triangle.  In other words, the move would be highly likely to end at the gray megaphone top.

The purple price channel scenario would likely lead to a new high.

ES VWAP Megaphone vs Head and Shoulders (Updated)

There's a Legal H&S with Breakout at ES's Blue Megaphone VWAP - Good Odds of it Morphing Into a Megaphone Though

There’s a Legal H&S with Breakout at ES’s Blue Megaphone VWAP – Good Odds of it Morphing Into a Megaphone Though

There’s a legal breakout from a little VWAP head and shoulders at ES’s bright blue megaphone VWAP.

But ES is forming a megaphone across a second VWAP at ES 2124–the potential buy-the-dip area I posted last night.

This is where the morph from an H&S top to a megaphone top across VWAP will happen if it’s going to happen.

The little 2124 megaphone has already retested the little H&S neckline.  If you see it start breaking out upwards back into the H&S, you can go long for a retest of the high and likely a new high as it completes the silver megaphone.

If you see it start breaking out downwards, it’s a set-up to short to at least a retest of the ascending triangle breakout at roughly 2110 and, if it can get through there, a larger H&S neckline at ES 2080-2090, where you could expect a bounce into at least a right shoulder.

People who prefer to let a position play out to its real target could stay on the short all the way to at least the 3-year price channel bottom a little below ES 2000.  But this little H&S has to survive first.

Update at the open:  SPY is filling the overnight gap on yet another short squeeze.

If it goes past filling the gap, I’d assume the megaphone is play.

But watch out for an interior megaphone across yesterday’s closing price.  A downward breakout from a megaphone there would be another set-up to short.

Update 7:12 a.m. Pacific Time: ES reentered the H&S neckline but that doesn’t really matter.  What matters is whether it can put in a genuine breakout through ES 2128 (not a megaphone across it, but a genuine breakout).

If it forms a top across 2128 then takes out the overnight low, it’s a set-up to short.

If you bought the dip to 2124 and ES keeps going through 2128, you stay long.  It could form an H&S with a neckline at 2128, or it could go for a new high for the yesterday/overnight megaphone, and if it does that, it could wriggle around at that megaphone top for a new all-time high.

Update 7:27 a.m. Pacific Time:  ES appears to be forming either an H&S with a neckline at the VWAP at ES 2124, or a megaphone across the VWAP area.  A downward breakout would be a set-up to short, confirmed by a breakout past the overnight low.

Megaphones sometimes put in a double wave down, so you always have to watch for a potential fake breakout and reversal back to the megaphone top.

Potential H&S at VWAP

ES is Forming a Potential H&S at its Bright Blue Megaphone VWAP

ES is Forming a Potential H&S at its Bright Blue Megaphone VWAP

ES is forming either a head and shoulders with a neckline at its bright blue megaphone VWAP (green scenario) or a megaphone across that VWAP (purple or red scenario).

Either way, a topping formation across VWAP or with a neckline at VWAP in this spot would usually lead to a breakout downwards from the megaphone.

The targets would be the larger H&S neckline at ES 2080, then a megaphone bottom at roughly 2050, then a larger megaphone bottom a little below 2000.  There will be bounces off each target.

ES still has a mandatory retrace to put in to its 3-year price channel bottom (which is steadily climbing through all this delay, but still below 2000).  And there’s a rising megaphone bottom a little below that that ES needs to tag.

The red or purple megaphone scenario is more likely because bulls will see an inverse H&S on the chart and try to buy the potential right shoulder low.

Nimble short-term traders may want to buy any kind of bottoming pattern that shows up on a dip to ES 2124 and ride the “breakout” from that inverse H&S.

If it’s a real breakout (doubtful), you just ride it.  If you see a surge in volume with little price movement (selling into the breakout buying) prepare to get out.  If you see a topping pattern form that breaks out downwards (red scenario), you can try a short on that breakout.

The trouble with reading any price action tomorrow, though, is that volume will be dismal heading into the holiday weekend.

Oil put in a right shoulder on an H&S today.  Euro futures have put in a little nub of a right shoulder on an H&S.

Little H&S Top on Right Shoulder – Caution Points Ahead

ES has Broken Out of a Little H&S Top on Today's Move Up

ES has Broken Out of a Little H&S Top on Today’s Move Up

ES has broken out of a little H&S top on today’s move, which is a legal right shoulder for the H&S on the chart.

If ES can’t break through the navy megaphone VWAP on its first try, this little top could still morph into a megaphone.

If ES makes it through the navy megaphone VWAP, ES is legal to break out downwards through the neckline (pink) of the H&S on the short-term chart.  The first target would be ES 2080, where there’s another H&S neckline.  ES would need to bounce into a right shoulder there.

ES could also swing back and forth between the pink H&S neckline and the orange trend line down from the high to form a right shoulder triangle (green scenario).

There also a potential (but doubtful) falling megaphone (orange) on the chart.  So if you see ES breaking back into that formation after breaking out of it, know that the retrace target is very close to the high.

 

Another Mini Sornette Bubble Right Shoulder

ES Put in a Mini Sornette Bubble Formation Overnight to Put In a Right Shoulder

ES Put in a Mini Sornette Bubble Formation Overnight to Put In a Right Shoulder

ES put in a mini Sornette bubble formation overnight to get back to its megaphone VWAP area.

It could just keep melting up to the navy blue megaphone top or it could retrace to the lumpy top area and reverse for a part 3 of the formation (a melt-up to the old high, a pause or retrace to VWAP, then likely a continuation to a new high).

Or it could top right here and break out of the H&S for a trip to another H&S neckline at 2090.

 

ES Down After Hours (Updated)

ES After Hours Sell-Off Changes Scenarios

ES After Hours Sell-Off Changes Odds of New High

ES has been selling off after hours, right through the bottom of its potential H&S right shoulder megaphone.

Instead it’s reacting to the sides of the little navy blue right shoulder topping megaphone.

This makes it more likely that ES is headed down to the neckline (pink) of its potential larger H&S.  And it lowers the odds that ES will put in a higher high.

There are megaphone VWAPs at ES 2124 and 2126 and ES must retrace to them to complete both the navy blue megaphone and the pink-neckline H&S.  A genuine breakout upwards though the 2126 VWAP would likely mean a new high.

But you’d have to watch out for a topping formation at or across that VWAP area.

Update 5:42 p.m. Pacific Time:  They’re running the exact same price channel play off the AH low.  The channel is confirmed and in its critical decision wave between melt-up to VWAP and starting a top down here.

ES Confirmed Price Channel Off the After Hours Low

ES Confirmed Price Channel Off the After Hours Low

 

Dow Price Channel

Dow Futures are in the Critical Decision Wave of a Confirmed Price Channel (Red) and Have Already Decided They're Topping

Dow Futures are in the Critical Decision Wave of a Confirmed Price Channel (Red) and Have Already Decided They’re Putting in a Top

Dow futures are in the critical decision wave of a confirmed price channel (red on chart).

The critical decision wave of a price channel is when a price either sets up a breakout into a steeper channel or forms a top.

Dow futures have already broken the bottom of the channel after confirming it and are now crawling up the channel bottom.  That means they are forming a top for the channeled move.

Based on the way the Dow is interacting with the price channel, it’s most likely in the head of a head and shoulders top.

IWM Price Channel Top

IWM Price Channel is Likely Topping for Potential H&S Right Shoulder Top

IWM Price Channel is Likely Topping for Potential H&S Right Shoulder Top

On Monday, IWM was in the critical decision wave of a price channel (blue on chart above).  This is where a channel either starts a top or breaks out into a melt-up channel.

IWM pushed through the top of the price channel, setting up the potential melt-up, but then retraced into the channel too far and made higher highs that stayed within the channel.

That means IWM is likely forming a top on the channeled move.

IWM has a head and shoulders on its chart with a neckline at the top of a major long-term rising megaphone (orange in chart below).  The price channeled move is part of a potential right shoulder on that H&S.

IWM H&S Neckline is at Top of Orange Rising Megaphone

IWM H&S Neckline is at Top of Orange Rising Megaphone

Here’s a close-up:

IWM H&S (Red Neckline) vs Price Channel

IWM H&S (Red Neckline) vs Price Channel

IWM is also trying to confirm a new price channel (navy blue on chart above) on its daily chart.  A top on the smaller price channeled move would likely cancel that price channel and confirm that a significant top is forming.

The target for a move down would be the bottom of the pink topping megaphone on the IWM daily chart.

If instead IWM makes it to a new high within the navy blue channel, it will be in the critical decision wave for that channel between putting a top on the channeled move and breaking out into a melt-up channel.