Now There’s a Falling Wedge

Now There's a Falling Wedge on the Chart

Now There’s a Falling Wedge on the Chart

Now there’s a falling wedge on the 2-minute chart. It has the minimum required touches on the sides so it would typically form some kind of little megaphone bottom here.

The inverse H&S set-up would usually form a little inverse H&S bottom on the head.

Unless the falling wedge puts in a breakout downwards (target roughly 40 points below) the bears are about spent.

A fast bottom here would leave bears in the running at the 1890 critical decision point. A slow bottom here will likely kill off the bearish scenarios.

Update on 2-Minute Chart

ES is Likely Either Forming an Inverse H&S (Red Neckline) or a Bottoming Megaphone (Pink) before a Retrace to At Least 1890

ES is Likely Either Forming an Inverse H&S (Red Neckline) or a Bottoming Megaphone (Pink) before a Retrace to At Least 1890

ES had an opportunity to form a triangle continuation pattern here. It failed because of excess bearishness.

ES could also have set up a falling megaphone bottom on the price channel posted earlier. That failed too on the last bullish wave.

That means ES is likely either forming an inverse H&S here (red neckline) or megaphone (pink on chart) for the required move to the 1890 critical decision point.

If ES spends a long enough time forming this bottom, the retrace to 1890 will break it out of its potential bigger falling megaphone, likely killing that set-up. So timing is now getting important.

Melt-Up Set-Up vs Deeper Correction

Melt-Up Set-Up vs Deeper Correction

Price Channel in Critical Decision Wave at Critical Level on 2-Minute Chart

ES is in the Critical Decision Wave of a New Price Channel on its 2-Minute Chart

ES is in the Critical Decision Wave of a New Price Channel on its 2-Minute Chart

ES is in the critical decision wave of a new price channel (pink) on its 2-minute chart.

This is the wave where the price either starts a bottom or sets up a breakout downwards from the channel into a melt-down.

The red line on the chart is the retrace target of the blue rising megaphone mentioned in this morning’s earlier post.

ES is a strong favorite to form a bottoming pattern across this level for a retrace to the critical decision level at 1890-1900.

We’re about to see a big move in one direction or the other.

ES Needs a Retrace to Critical Decision Point at 1900

ES Needs a Retrace to its VWAP Critical Decision Point

ES Needs a Retrace to its VWAP Critical Decision Point

ES broke out through its H&S neckline overnight.

That confirms another formation I haven’t mentioned before because the chart was so complicated. ES has broken out of the bright blue rising megaphone on the chart above and already retraced to its retrace target at the level of the lowest touch on the formation bottom.

The rising megaphone might be a leading diagonal or it might be the top before a move to 1700 or lower.

This move now puts a potential large Sornette melt-up set-up on the chart.  A Sornette melt-up set-up has to confirm with a certain type of upwards breakout.  I’ll post that separately.

ES now needs to put in a retrace to at least its orange megaphone VWAP, which would also be a retest of the blue rising megaphone bottom. The retrace target is roughly 1890-1900.  If ES breaks out upwards through the orange megaphone VWAP, it will be heading up to its inverse H&S neckline at VWAP of the big megaphone formed off the August 24 low.

(It’s also possible, but less likely, that ES will wait to put in that retrace until after it takes out the January 20 low.  If you want to play the move, wait for a bottoming pattern to break out upwards.)

A breakout through the inverse H&S neckline would also likely trigger the Sornette melt-up set-up.  The technical target for the move would be roughly 2400.

If instead ES reverses at 1890-1900, you can expect it to take out the January 20 low before another pullback through that low to eat any stops set too tight behind the breakout level.  That move and pullback will be the left shoulder of a new, larger inverse H&S bottoming pattern.

The move to the new low would confirm a new, larger falling megaphone on the chart (gray, not highlighted).  ES would put a double wave down into the head with a target of at least 1700 and mostly likely the mid-1600s.

The head of the new larger inverse H&S would complete with a smaller inverse H&S that helps work the price back to the side of the larger gray falling megaphone.  A breakout upwards from the smaller inverse H&S and/or the gray falling megaphone would be a set-up to go long for a retrace to roughly 2077, which is the level of the highest touch on the top of the big falling megaphone.

ES would probably reverse around there for a bigger move down.

Remember that the opex-week effect starts Friday.

Quick Post on the 10-Year T-Note

The 10-Year T-Note has Reached its Megaphone Top and Needs a Retrace to at Least the Megaphone VWAP

The 10-Year T-Note has Reached its Megaphone Top and Needs a Retrace to at Least the Megaphone VWAP

The 10-year has reached the top of a megaphone (red on chart) on its 60-minute chart. It needs to complete a topping pattern at or across the formation top and then retrace to at least the megaphone VWAP.

I could do an entire post on the subtleties of the topping process before the return to VWAP, but suffice it to say that the 10-year could still make a higher high to complete the head on a head and shoulders top.

The red megaphone is an interior megaphone across the VWAP of several larger megaphones on the daily chart, including a scary-looking big mama megaphone that began forming in 2011.  That would usually mean the 10-year is forming a large triangle continuation pattern before a blast-off to the big megaphone top.

The T-Note is Likely Forming a Continuation Triangle Across VWAP of the Big Megaphone that Began Forming in 2011

The T-Note is Likely Forming a Continuation Triangle Across VWAP of the Big Megaphone that Began Forming in 2011

The blue megaphone is likely to redraw on that blast-off because the existing top is awfully steep, but still the 10-year would be traveling up to well past the 2012 high.

Best Bear Market Scenario

The Best Bear Market Scenario is Probably the Larger Gray Falling Megaphone Set-Up

The Best Bear Market Scenario is the Larger Gray Falling Megaphone Set-Up

New Trend Line May Be Important

On Thursday and Friday, ES honored a new trend line established last Monday (gray on chart).  That trend line may be important.

Remember, ES has drawn a potential head and shoulders top on the chart for the move out of the January 20 low. There are also a number of blow-off top set-ups on the chart for a move to 2400 (see the set-ups here).

But if ES can actually break out of that H&S top, it will put a potential set-up for the larger gray falling megaphone on the chart.

A Breakout Sunday or Monday from the H&S would Not be Enough to Confirm

A breakout through the H&S neckline would not be enough by itself to confirm the gray falling megaphone. That breakout would leave some very bullish set-ups on the chart.

To confirm the gray falling megaphone, ES would have to break out of its inverse H&S, retest the January 20 low, then retest the H&S neckline and orange megaphone VWAP while continuing to honor the top of the potential gray falling megaphone or piercing it by only a bit.

ES could still redraw the gray trend line by forming a triangle right shoulder on its H&S top.  A triangle is one of the few things that could cross that trend line without killing this set-up.  Any other genuine breakout through that trend line would kill the set-up and confirm a blow-off top set-up.  A triangle right shoulder that forced a redraw of the gray falling megaphone top would actually make the formation look better.  It’s too narrow at the bottom right now.

Then ES would have to follow up with a take-out of the January 20 low.  If ES takes out the January 20 low with this series of moves, ES will have confirmed the larger gray falling megaphone.

The Megaphone False Bottom Scenario

This is the best bear market scenario I can come up with.  This is essentially a recipe for one final falling megaphone down to establish a larger falling megaphone (again, gray) that includes the topping waves above 2000.

This move down would absolutely be the last before a retrace to the falling megaphone top at 2077.  No further extensions would be possible.

The first take-out of the January 20 low and retrace would be the left shoulder of an inverse H&S that would actually end up breaking out upwards.

The head would be a double wave down.

The target would be the bottom of the big megaphone that formed off the August 24 low (red on chart below).

This is a megaphone false bottom scenario. Once megaphones get very large, they will often put in a false top or bottom at roughly the level of the previous megaphone high or low. Then they retrace to VWAP before continuing to the megaphone side.

Megaphone False Bottom Scenario

Megaphone False Bottom Scenario

An inverse H&S at VWAP of the big red megaphone would target the megaphone top. A reversal at VWAP from a false bottom would target the megaphone bottom.

More Bear Market to Come

By taking ES to at least 1700, ES would trigger a flat-bottomed megaphone set-up on its daily chart that would eliminate a requirement to put in a new all-time high on the retrace to 2077.  Instead, ES would likely reverse at 2077 for a trip to a much lower low.

ES would essentially be putting in a wild megaphone here  (blue on top chart).  The target for a downwards breakout from that megaphone after the retrace to 2077 would be roughly ES 1225.

Opex Timing

Next Friday is the start of the opex effect on the market. That means next Friday is likely to be either the start or end of this move if this move is going to occur.

ES was putting a little inverse H&S bottom on a one-day falling megaphone at the close Friday. If ES breaks out upwards from that little inverse H&S, the minimum target is 1910, which would be roughly at the top of the potential gray falling megaphone.

If ES triangles all week between the H&S neckline at 1864.50 and roughly the gray falling megaphone top, a downwards breakout from the triangle late in the week could set up an opex melt-down.

If ES instead breaks out downwards from its H&S Sunday night, it likely must complete its move down by the start of opex, or an opex melt-up could cancel the move.

Don’t Forget the Blow-Off Top Set-Ups

Don’t forget that it would be awfully easy for ES to kill this bear market set-up and trigger one of its blow-off top set-ups for a move to 2400.

A breakout from an inverse H&S at a major megaphone VWAP is one of the most bullish set-ups I know.

Oil Long Set-Up

Oil Falling Megaphone (Blue) Targets Roughly the 200 dma

Oil Falling Megaphone (Blue) Targets Roughly the 200 dma on Breakout

Oil has just put in a falling megaphone formation (blue on chart above), complete with a classic inverse H&S bottom. All that’s needed to complete the formation is a breakout. A breakout from the falling megaphone would also be a breakout from the inverse H&S.

Both formations have a minimum target of roughly the level of the top touch on the falling megaphone top, which is now roughly at oil’s 200 dma at roughly 46-47.

The Inverse H&S for the Red Falling Megaphone is Also a Bottoming Pattern at the Blue Megaphone Bottom

The Inverse H&S for the Red Falling Megaphone is Also a Bottoming Pattern at the Blue Megaphone Bottom

The top chart shows a large gray falling wedge bottom on oil, but there’s another way to look at the chart. Oil has also put in a classic megaphone bottom (blue on chart directly above).

The inverse H&S for the falling megaphone is also an inverse H&S at the blue megaphone bottom.

Oil was legal for a downwards breakout from the blue megaphone, but a downwards breakout wouldn’t usually stop to form an inverse H&S at the megaphone bottom.

The inverse H&S up against the blue megaphone bottom strongly suggests an ultimate target of the blue megaphone top.

I’ve heard the same stories as you of an overwhelming oversupply of oil, but the chart says what it says.  Again, the set-up is to go long on the breakout from the falling megaphone and little inverse H&S.  If oil should reenter the falling megaphone after breakout, it’s a set-up to short again.

I wouldn’t be surprised to see oil retrace to its 200 dma and spend some time moving sideways there, maybe forming a triangle or megaphone right shoulder on the potential inverse H&S with a neckline there.

Nikkei Likely Headed to Past 2015 High

The Nikkei has Formed a Megaphone Right Shoulder on its Head and Shoulders - Would Usually Mean a Squeaker New High

The Nikkei has Formed a Megaphone Right Shoulder on its Head and Shoulders – Would Usually Mean a Squeaker New High

The Nikkei 225 has formed a megaphone right shoulder on its head and shoulders top for its rising megaphone out of the 2011 low.

Here is a close-up of the megaphone right shoulder:

Nikkei Megaphone Right Shoulder

Nikkei Megaphone Right Shoulder

Usually a big, loose right shoulder megaphone like this one would mean a new high that will be the head of a larger H&S formation.

The Nikkei is working on a bottoming megaphone within the larger pink megaphone and has just retraced to its VWAP.  It could continue down for another tag on the formation bottom, or it could reverse right here for a breakout through the pink megaphone VWAP and a likely 5th wave melt-up to the new high.

The melt-up would likely complete by breaking out through the pink megaphone top to put a topping formation like a head and shoulders at or across that top.