Euro / EURUSD Retrace Requirement

Euro Futures have a Mandatory Retrace to the 1.36 Area to Get In Soon

Euro Futures have a Mandatory Retrace to the 1.36 Area to Get In Soon

Euro futures have a short-term megaphone top and VWAP of larger megaphones to get back to at roughly 1.36.

On EUR/USD, as Gus pointed out, it’s 1.35 to 1.355ish, depending on how you draw the megaphone:

EUR/USD Should Retrace to Megaphone Top

EUR/USD Should Retrace to Megaphone Top

On euro futures, that’s a mandatory retrace that has to happen very soon.

ES & SPY Short-Term Topping Pattern (Updated 4x)

The Short-Term Top will Look Like One of These Set-Ups

The Short-Term Top will Look Like One of These Set-Ups

ES and SPY have broken out the bottom of their price channels and are forming a triangle (blue) that can either break out downwards (purple scenario—I know that scandalizes E-wavers, but think in terms of a truncated fifth) or will break out upwards without completing properly into the head of a head and shoulders or middle of a megaphone (green scenario).

The target is a retrace to at least the megaphone VWAP at ES 1968/SPY197.30.  But you kind of have to start thinking now that any short-term top could be The Top.

The retrace could also go to ES 1960/SPY 196.50 or ES 1952.50/SPY195.75 and then retrace to ES 1968/SPY 197.30.

Depending on exactly where this topping pattern tops, ES and SPY could also plunge straight to the ES 1900-1920/SPY 191.78ish area before a retrace to ES 1952.50ish/SPY 195.75.  That would put a larger head and shoulders on the chart.

If you’re trading a 401k where you are limited in the number of position changes you can make, you should just ride out this dip even if it goes to the ES 1900 area.  The critical decision in that scenario would happen at the return to ES 1952.50.

Today has been a classic fake break-out distribution day.

Update:  When I say that you have to take the attitude that any short-term top could be The Top, that doesn’t mean you should get too confident about it yet.  These dips are designed to eat the stops of everyone who just got long at the breakout and if possible get them short so that big money can let a short squeeze take the price to another new breakout that they can sell into again.  This could go on for a while.

Update 2 11:49 a.m. Pacific Time:  If you look at IWM, you’ll see that this dip is just a retest of the little bottoming megaphone VWAP before a likely trip to that megaphone top at 117.50.  That would go well with a big loose ES/SPY megaphone up here swinging between 1968 and 2000ish.

IWM Retesting Pink Megaphone VWAP Before Likely Retest of 117.50

IWM Retesting Pink Megaphone VWAP Before Likely Retest of 117.50

If the price heads back up into that little blue ES/SPY triangle that broke out downwards, the big loose megaphone is likely happening.

Update 3, 12:29 Pacific Time:  Okay, this is going to be the megaphone scenario.  Chart in a minute.

Update 4:  Here’s the chart.  I’ll update it as pieces lock into place.

ES Likely Scenario

ES Likely Scenario

 

Trading Notes

Believe it or not, TRIN is actually bearish for the day.

7:32 a.m. Pacific Time:  ES needs a return to 1968 from right around here.

Note that the big money is doing exactly what was expected—allowing the price to move up to new highs specifically to sell into the buying there. No new high actually leads to a lasting breakout. A lasting breakout would defeat the purpose of getting the price to a new high.

Just think of the stops at 2000

9:15 a.m. Pacific Time: ES is working on a move up price channels. It has already broken out into a steeper channel and confirmed it.

Basically, when the price breaks the bottom of the steeper red channel by more than a feeler, you’ll know a topping formation has started. After the downward breakout, it may put in another higher high before completing. Here’s the chart:

ES is Moving Up a Price Channel

ES is Moving Up a Price Channel – Downward Breakout From Steepest Channel Means Top is Forming

ES Up Overnight But Needs Retrace to 1968

ES Moved Up Overnight But Needs to Retrace to the Orange & Purple Megaphone VWAP at 1968 Before Going Much Further

ES Moved Up Overnight But Needs to Retrace to the Orange & Purple Megaphone VWAP at 1968 Before Going Much Further

ES is up overnight and may go for a new all-time high before retracing, but it has numerous nested megaphones on the chart that require a retrace to 1968 (SPY 197.30) before it can go up much further, and that dip could go all the way to 1952.50 without it meaning much.  ES could reverse right here for that retrace or go as high as 1988-1990 before that retrace (SPY 199.30-199.50).

If the price reverses at 1968, ES could go as high as 2020 before another required retrace to 1968, although the fight at 2000 should be interesting.  If the price goes to 1952.50 on this first retrace, things get even more complicated and I’ll have to put up new charts.

The new bright blue megaphone top and the likely swing to the larger purple megaphone’s top mean there’s a new retrace requirement at roughly 1940 if ES and SPY were to try to dip here to their 1900-1920ish eventual target.  The longer ES and SPY are delayed up here, the lower that target goes.

The first step is to see where the price turns for a retrace to at least 1968.  The second step is to see whether the price turns up again at 1968 or goes all the way to 1952.50.  It’ll be swing by swing for a while.

SPY Put-Call Ratio Rose on a Crash in Open Interest

The SPY Put-Call Ratio Ended the Day at 2.43

The SPY Put-Call Ratio Ended the Day at 2.43

The SPY put-call ratio rose to 2.43 today on a 25% crash in open interest.

You tend to see these big drops in SPY put-call open interest right before major holidays and before dips.  The dips range in size from 10-15 points to 100+ points.  Occasionally if the price has already made a sizable dip, you see it near the dip low. Continue reading