Head and Shoulders with Triangle Right Shoulder Says Top

Potential Topping Triangle/H&S with Triangle Right Shoulder

Potential Topping Triangle/H&S with Triangle Right Shoulder

ES has formed an ugly topping pattern in the critical decision point of its 3-year price channel.

You could call it either an ugly version of a topping triangle, or a head and shoulders with a triangle right shoulder. A head and shoulders formation with a triangle right shoulder almost always breaks out downwards.

The H&S/topping triangle would target roughly the area of the October 15 low if they actually break out downward.  A reversal there would set up a larger head and shoulders formation, with the price moving into the right shoulder on a retest of the 3-year price channel bottom.

A larger correction could abort if the right shoulder of the larger H&S turns into a megaphone, which would suggest a trip to a new all-time high.  Any topping pattern can morph into a small piece of a larger topping pattern, and any topping pattern can morph into a continuation pattern.

Potential Megaphone Morph into Triangle

A New Megaphone (Bright Blue) has Formed that Suggests ES is Forming a Triangle

A New Megaphone (Bright Blue) has Formed that Suggests ES is Forming a Triangle (Pink)

A new megaphone (bright blue on chart) has formed inside the navy blue Sunday night megaphone.

A new interior VWAP megaphone in this spot strongly suggests a triangle is forming (pink on chart, purple scenario).

A triangle here suggests the Sunday night bottoming megaphone within a megaphone is morphing into a continuation pattern.

ES Decision Point

ES Completed the Retrace to VWAP of its Sunday Night Megaphone Overnight

ES Completed the Retrace to VWAP of its Sunday Night Megaphone Overnight

ES completed the retrace to VWAP of its Sunday night megaphone (navy blue on chart) overnight.

Now it’s legal to take off upwards for breakouts from the navy, bright blue, and red megaphones.

Or, ES can plunge through VWAP of its navy blue megaphone for a trip to the megaphone bottom again, and likely on to the bottom of its red megaphone and 3-year price channel.

SPY Put-Call Ratio Still High

The SPY Put-Call Ratio Closed at 1.93

The SPY Put-Call Ratio Closed at 1.93

The SPY put-call ratio closed at 1.93 today. That’s well above the ratio’s 20 dma and high enough to be bullish for the price, though outside of opex week the effect is not always immediate.

SPY put volume rose by 20% on a moderate rise in open interest.  SPY call volume rose by 27%,

Swiss Franc Megaphone Across VWAP of 17-Month Megaphone

Swiss Franc Futures Megaphone (Pink) Across VWAP of 17-Month Megaphone

Swiss Franc Futures Megaphone (Pink) Across VWAP of 17-Month Megaphone

Swiss franc futures have formed a megaphone (pink on chart) across VWAP of their 17-month megaphone (blue in chart below).

Swiss Franc Megaphone

Swiss Franc Megaphone

The Swiss franc can break out downwards from the pink megaphone after a retrace to VWAP (green scenario) or make another move all the way to the top of the pink megaphone (purple scenario), which is more likely.  The purple scenario could break out upwards from the pink megaphone after a retrace to VWAP.

An upward breakout from the pink megaphone would free up the Swiss franc to break out upwards from the blue megaphone as well, with a target of roughly the height of the thickest part of the megaphone added to the breakout point.

A downward breakout from the pink megaphone would target the blue megaphone bottom.

The Swiss franc could also get stuck moving back and forth in the pink megaphone for a long enough time to morph the blue megaphone into a triangle.

ES Overnight Megaphone Update

ES is Back at the Top of its Overnight Megaphone (Navy Blue)

ES is Back at the Top of its Overnight Megaphone (Navy Blue) and Needs a Retrace to its VWAP

ES is back at the top of its overnight megaphone (navy blue on chart). It needs a retrace to the megaphone VWAP (or at least a strong gesture at it) before it can legitimately break out upwards. If it lingers up here making a big enough, serious enough topping formation, it could go all the way back to the megaphone bottom.

You can’t just put on a short position here, because a price can travel up the top of a megaphone for a long-enough distance to eat any sensible stop.  You have to wait for an actual little topping formation to complete, and then bet the breakout.

What’s complicating potential scenarios is that there are now multiple megaphones inside multiple megaphones, each with their own VWAP.  A megaphone will often retrace to beyond its own VWAP if there is a VWAP of a larger megaphone nearby.

The chart is a mess.

Trading Notes (Updated)

ES has met the minimum requirements for a downward breakout from the overnight megaphone.

But this is also the spot where it would sometimes put in a fake breakout in a double wave down, before another wave to the megaphone top.

So if you’re trying to enter a short position here, you have to play it a little slowly.

Update 8:17 a.m. Pacific Time: The megaphone double wave down formed a falling wedge.  The low so far was an exact touch on the wedge bottom.  The wedge just put in its first upward breakout.  That means we’ll probably see an interior megaphone down here that will take ES to a lower low.

Update 8:19 a.m. Pacific Time:  Note that the top of the overnight megaphone will be at roughly our short entry point–the VWAP at ES 2013–by the time the price gets back up to it (if it gets back up to it).  So don’t stay short if a little bottoming megaphone here (within the overnight megaphone) breaks out upwards.

If you play short-term moves, might as well play the swing to the megaphone top.

Stop eating at its finest.

Update 9:06 a.m. Pacific Time:  Danger of no lower low.  There’s a tiny bottoming megaphone at bottom of today’s falling wedge/double wave down.  It, of course, broke out upwards.  That may be all we get before trip to megaphone top.

Update 9:07 a.m. Pacific Time: Note that VWAP of the overnight megaphone is at roughly ES 1994.

The wave up off the bottom has formed a price channel, which is at the critical decision point.  If it breaks out upwards, then does a partial retrace and breaks out again, it’s a melt-up to the megaphone top.

If it breaks out the channel bottom, then we could see the lower low.

Price Channel within Megaphone

Price Channel within Megaphone

Update 9:48 am Pacific Time:  Got the downward breakout from the price channels (there was more than one).

Now literally anything can happen here, because there’s a decent-sized megaphone forming across the VWAP of the navy blue megaphone.

Often this consolidation would morph into a continuation triangle across this mid 1990s-2000 area.