PCLN Price Channel Within Long-Term Rising Wedge Could Lead to Plunge

PCLN Confirmed a Price Channel Then Broke Out of it This Morning on the BOJ Yen Meltdown

PCLN Confirmed a Price Channel Then Broke Out of it This Morning on the BOJ Yen Meltdown

PCLN had confirmed a new price channel, then broke out of it this morning on the yen meltdown.

A price channel breakout would usually retest the top of the old channel.  That retest establishes the new steeper channel (as drawn on chart).

Because of the point PCLN was in within its blue channel, the breakout move can either be the start of a topping pattern (green scenario) or a lead-in to a move further up the channel.

These short-term moves are occurring with a long-term rising megaphone that broke out the top and has been making big volatile moves since.  These moves are consistent with the formation of a major top.

PCLN Long-Term Rising Megaphone

PCLN Long-Term Rising Megaphone

Usually a long-term rising megaphone formation would have a VWAP up near where a move to the megaphone bottom would be a retest of VWAP. But in PCLN’s case, the VWAP of the rising megaphone is far below.

That means that after PCLN tops, it’s headed for a breakout from the rising megaphone to get to that retest of VWAP.

Sometimes a price won’t get all the way to a VWAP that far down. Instead, you’ll see it start a sideways move roughly 2/3 of the way to the VWAP. But in those cases, the price will usually be stuck in a relatively small trading range for a very long time (years)–long enough to move the VWAP up to that level.

Where the short-term chart and long-term chart intersect is that PCLN price channels may have it starting a short-term top right now.  If that is the case, that top will be forming across the topping formation VWAP (horizontal pink line on chart).

A downward breakout from a topping formation at that VWAP targets at least the bottom of the long-term rising megaphone, and likely a big breakout through it.

Trading Notes

ES has now completely given up the pretense of having formed a breakout price channel (the potential pink channel on the charts in today’s earlier posts).

That means it’s forming a top here.  But look at the charts below and don’t be the bear who powers a short squeeze.  We could still see a sizable move up as part of a topping formation.  If we see a sizable move up, there will be a little top at the tip of it and we will short from there.

Stay long until we see a formation complete and actually break out downwards.  Make the market prove it.

Likely Gold Bottoming Megaphone

Gold is Likely Forming the Potential Navy Blue Bottoming Megaphone

Gold is Likely Forming the Potential Navy Blue Bottoming Megaphone

Gold took out the end-of-December 2013 low today, no doubt driving gold bugs to despair, but for me it’s starting to get me very interested in gold again.

The breakout happened in the context of a short-term falling wedge breakout within a megaphone within a megaphone.

Gold Broke Out of the Purple Falling Wedge within the Orange Megaphone

Gold Broke Out of the Purple Falling Wedge within the Orange Megaphone

Gold starting forming a megaphone (navy blue on chart) in September. That has basically tightened up into the orange megaphone on the chart (this kind of tightening is a common occurrence when megaphones start to get big).

On the approach to the orange megaphone bottom area, gold formed a falling wedge (purple on chart). It broke out the top of that falling wedge today.

Because gold put the minimum-required touches on that falling wedge, it will likely form a megaphone here that puts larger falling wedges on the chart and takes the price lower. So we will likely be redrawing that orange megaphone bottom.

But the orange megaphone implies that this move down in gold is just a swing within a trading range, rather than a trending move. Gold must retrace to the megaphone VWAP at roughly 1225 before it is legal for a larger move downwards. But it’s a favorite to go all the way to the orange megaphone top at roughly 1275.

If it gets up there, it has good odds of setting up an upwards breakout from the orange megaphone (see scenario on top chart).

ES Potential Short Set-Ups

Potential Short-Term Tops on ES

Potential Short-Term Tops on ES

Since ES has already nicked the bottom of its new pink breakout price channel at a time when it should be melting up to the channel top, it’s like already forming a topping pattern here.

I’ve drawn some of the potential topping scenarios on the chart–there are others, more than I can fit in the chart.

In general, I’d short a triangle here that broke out downwards back into the navy blue price channel.

If the triangle breakout didn’t last, I’d get long again on another breakout upwards through the blue price channel top in case the formation was turning into a head and shoulders with a big head.

Other possible topping formations would be an ending diagonal along the navy blue price channel top (or across it) or a rising megaphone top with a bottom along the navy blue price channel top.   We’d get the rising megaphone scenario if we see a head and shoulders form here with a right shoulder that breaks out upwards.

 

ES Simple Short-Term Trading Set-Ups

ES Short-Term Price Channel Set-Ups

ES Short-Term Price Channel Set-Ups

Here’s a simpler way of looking at the ES short-term charts. It doesn’t negate the megaphones and rising wedges on the charts. It will just be easier to trade.

ES has formed a price channel (navy blue) since October 22.  (Not perfect, but close enough.)  That price channel has broken out upwards on the yen melt-down.  It has also retested the top of the navy blue price channel.

That means you draw a new melt-up channel (pink) as shown on the chart.

Basically, if ES breaks out downwards from that pink melt-up channel, it’s not melting up.  It’s topping for a dip to at least 1935.50.

The safest time to short is on a genuine breakout back into the navy blue channel after a complete topping pattern.  You have to play it a little slow, because in low-liquidity the price crosses every line on every retest.  You stay long until either the breakout back into the navy blue channel or a breakout downward from a topping formation at the top of the topping formation.

If the price somehow makes it through 1935.50, the target would be the bright blue megaphone bottom.  But the odds of that are low except in the context of something like a bottoming megaphone across 1935.50.

You would go long again on an upward breakout from such a megaphone.

I just want to note that a genuine breakout from a price channel should be melting up in its melt-up channel a lot faster than this one is.  Look at this morning’s yen post for an example of a proper price channel breakout.

SPY Scenarios for Top vs. New Sornette Bubble Set-Up

SPY 5-Month Megaphone Scenarios

SPY 5-Month Megaphone Scenarios

After the BOJ announcement that melted down the yen, the market reacted with a strong gap up.  The way the market follows up will tell us a lot about the odds of a genuine upward breakout from the SPX 5-month megaphone (red on chart).

The market is going to make it to its 5-month megaphone top (red on chart).  Basically, if it heads straight up there from here, it will break out, form a giant topping pattern at the megaphone top (probably larger than I could fit on the chart), and then likely collapse all the way to the red megaphone bottom.

If instead it can coil a bit on the way to the top, it could meet all requirements for an upward breakout from the formations on its short-term charts, and then go for a breakout through the red megaphone top that keeps going into a blow-off top vertical move.

The green breakout scenario is also a fresh set-up for a Sornette bubble melt-up.

In other words, the more bullish it looks right here and over the next weeks, the less bullish for the longer term.

All put-call ratios were at neutral last night.  There is no excessive bearishness to continue melting up the price with a short squeeze.  The market needs to get bears excited again to get the power for a really major move up.

The market needs to form a top over the next couple of days (think the elections) for a return to at least ES 1935.50/SPY 194, or bullish seasonality will take hold and we’ll get the purple scenario.

Here’s the short-term bearish, longer-term bullish scenario on an ES short-term chart:

Short-Term Bearish, Long-Term Bullish Scenario

Short-Term Bearish, Long-Term Bullish Scenario

The short-term bullish, long-term bearish scenario would put a rising megaphone top along the top of the bright blue megaphone on this chart, and probably a rising megaphone top on that as well.  But the price would not truly escape the bright blue megaphone.