JNK Triangle Legal for Breakout

Junk Triangle (Navy Blue) Breakout would Target Red Megaphone Side

Junk Triangle (Navy Blue) Breakout would Target Red Megaphone Side

JNK has been forming a triangle (navy blue on chart) since spring of 2012.  The triangle formed across VWAP of a megaphone (red on chart) that’s been forming since late 2009.

The navy blue triangle is now legal for a breakout in either direction.

However, a breakout upwards from here would likely be a fake breakout, because the last touch on the triangle bottom was exact.  If the breakout traveled any distance at all it would likely be into the head of a head and shoulders with a neckline at roughly 38.21.

A genuine breakout in either direction would target the side of the red megaphone across whose VWAP the navy blue triangle has formed.

Triangle on the 10-Year

Triangle (Navy Blue) on 10-Year T-Note

Triangle (Navy Blue) on 10-Year T-Note

There’s a legal triangle (navy blue) on the 10-year t-note chart. A downward breakout would target an important long-term megaphone VWAP at roughly 125-10 and possibly lower (there’s a potential head and shoulders on the chart, and this triangle could be the right shoulder).

An upward breakout targets a retest of the October 15 high. Likely a big triangle or other sideways pattern would be forming.

Falling Megaphone on ES 2-Minute Chart

Falling Megaphone on ES with Low an Exact Touch on Megaphone Bottom

Falling Megaphone on ES with Low an Exact Touch on Megaphone Bottom

ES formed a falling megaphone (pink) on this dip. The formation low was an exact touch on the bottom.

The exact touch would usually mean we’re going to see a lower low for this dip.  The falling megaphone means at a minimum a retrace of most of the falling megaphone and most likely a new high after a lower dip low.

This one’s tricky, because yesterday’s high SPY put-call ratio probably accounts for a lot of the falling megaphone buying.

Trading Notes

That was a second H&S breakout.  Again, there hadn’t been a downward breakout from a topping pattern since the October 15 low, until this morning.

So the next hurtle is the top of the red 6-month megaphone at ES 2052.25.

Update:  I’m having sporadic internet problems.  Doubt it gets through 2052.25 today, but if it does, see targets in earlier post.

Potential Head and Shoulders

Potential Head and Shoulders on ES 5-minute Chart

Potential Head and Shoulders on ES 5-minute Chart

The little head and shoulders at this morning’s top held (the first topping formation to succeed in breaking out downwards since the October 15 low), and now there’s a larger potential head and shoulders on the chart.

A megaphone right shoulder would usually mean a higher high is coming. A fast right shoulder or triangle right shoulder would usually be bearish.

A downward breakout would be a set-up to short to roughly ES 1937.50, although the price will likely start megaphoning at ES 1955. If the short is going to go wrong, it will happen at roughly ES 2028 or ES 2010.75, where there are megaphone VWAPs that might stop the fall.

The Purple Scenario is the Most Bullish Long-Term

The Purple Scenario is the Most Potentially Bullish Long-Term

If the price should make it all the way to ES 1937.50, it will retrace to the navy blue megaphone VWAP at 2011 for the decision on longer-term direction. An upward breakout from the navy blue megaphone would free the price to run a long way up in a blow-off top.

A failure to make it back up through 2011 would free the price for a huge fall.

But we have to see ES make it through 2028 before any of this is worth thinking about.

Trading Notes

Note that ES is trying to top here.  There’s technically a  little H&S across the navy megaphone top that’s already broken out downwards.

But the breakout looks a lot like a double leg of a megaphone.  If the price reenters the H&S right here (I think it will) they’re trying to top it with a megaphone.

These attempts at tops have broken out upwards every time since the October 15 low.

Update 7:17 a.m. Pacific Time:  A little megaphone appears to be forming across the little H&S neckline.  Usually that would mean a higher high is coming, especially with yesterday’s high SPY put-call ratio.  Another break back up through the H&S neckline probably means higher high.

ES Breakout of Six-Month Megaphone

ES has Broken Out of Six-Month Megaphone (Red) on Daily Chart

ES has Broken Out of Six-Month Megaphone (Red) on Daily Chart

ES has broken out of its 6-month megaphone (red on chart above) overnight. However, this would almost never be a genuine breakout because ES failed to retrace to the megaphone VWAP first.

What would almost always happen here is that ES would put in a big topping formation on the top of the red megaphone. It could run a long way forming that top, and there will be a little topping pattern up at the top of this formation.

ES has not yet broken out through the red megaphone top line on its 60-day chart, and it usually would in a spot like this. You’d usually see it break out through that line on its 20-day chart as well.

A big topping formation on top of the red megaphone would usually be very bearish longer-term. The move after the topping formation breaks out back into the megaphone would usually be a collapse all the way to the red megaphone bottom, wherever it happens to be by then.

There is an alternate scenario, however. ES has just tagged the top of a shorter-term megaphone (navy blue on chart below).

ES is at a Shorter-Term Megaphone Top that Could Still Pull it Back

ES is Also at a Shorter-Term Megaphone Top that Could Still Pull it Back

If ES forms a smaller top at or across the navy blue megaphone top, it could still retrace to the bottom of the navy blue megaphone at roughly the red megaphone VWAP.

A pullback like that in this spot could be hugely bullish longer-term.  If the navy blue megaphone ended up breaking out upwards, the pullback would set up ES to keep running after the breakout.

SPY Put-Call Ratio Still High at 1.77

The SPY Put-Call Ratio Closed Thursday Well Above Its 20 dma

The SPY Put-Call Ratio Closed Thursday Well Above Its 20 dma

The SPY put-call ratio was at 1.77 as of the Thursday close. That’s high for going into opex Friday, and would usually be bullish for the price tomorrow.

The ratio is well above the ratio’s 20 dma and higher than the long-term average of 1.50.

SPY put volume fell 25% on a moderate rise in open interest (which is high).  SPY call volume fell 13%.

This is another one of those set-ups in which open interest has continued to climb during a sideways move, with both bulls and bears piling on.  When one side or the other finally capitulates, we should see a good price move out of it.