ES Trying to Top

ES is Back Inside Its Blue Rising Megaphone, Has Put in a New High Inside, and Is Trying to Work its Way to its Bottom for Breakout

ES is Back Inside Its Blue Rising Megaphone, Has Put in a New High Inside, and Is Trying to Work its Way to its Bottom for Breakout

ES has reentered its blue rising megaphone and made a new high inside after reentry.  That’s classic.

Now it is trying to work its way back to the formation bottom to complete a head and shoulders top and break out of it (green scenario).

ES never retested 2300 after breaking out through it, and would usually retest that level sooner rather than later.  And 2300 is inside the red megaphone.  That means when ES reenters the megaphone for the retest it will likely not break back out of the megaphone but instead follow through with a trip to the megaphone bottom.

So there’s a decent chance ES is topping right here (green & pink scenarios).

But ES has also left itself plenty of outs if it wants to extend the blue rising megaphone (orange scenario).  And when the first two waves of a rising megaphone are as close together as those in the blue rising megaphone, the formation usually extends.

Also, the technical target for the upwards breakout from the head and shoulders on the daily chart is roughly 2400.

So there’s a good chance that ES will put in at least a retest of the red megaphone top from here.  If it reenters the formation, it’s a set-up to short.  If not, ES will be moving up fast into the head of a H&S top sitting on top of the red megaphone.

Gold has Confirmed a Rising Wedge to 1250 Target

Gold has Confirmed a Rising Wedge (Blue) to its 1250 Retrace Target

Gold has Confirmed a Rising Wedge (Blue) to its 1250 Retrace Target

Gold needed a retrace to its purple megaphone VWAP at 1250, and it has just confirmed a rising wedge (blue on chart) as it reaches 1250.

Gold Rising Wedge to the Purple Megaphone VWAP Raises the Odds of the Purple Scenario

Gold’s Rising Wedge to the Purple Megaphone VWAP Raises the Odds of the Purple Scenario

While gold could break out upwards from the rising wedge (pink scenario), it’s most likely to break out downwards to either start a series of megaphones-inside-megaphones across 1200 (green scenario) or start a plunge to the bottom of the big red megaphone on the chart (purple scenario).

The green scenario would ultimately form a triangle that could break out in either direction–up for a breakout from an inverse head and shoulders with a triangle right shoulder, or down for a trip to the red megaphone bottom.

Gold could also use the green scenario to stay near 1200 for years.  In that case, it would break out upwards from the green triangle but only to the top of the red megaphone, where it would reverse to complete a large megaphone right shoulder on gold’s potential inverse H&S.

QQQ Nears Its Price Channel and Rising Wedge Tops

But Do Not Short Too Soon!

QQQ is Nearing its Orange Price Channel & Blue Rising Wedge Tops

QQQ is Nearing its Orange Price Channel & Blue Rising Wedge Tops

QQQ is approaching its orange roll-up price channel top and blue rising wedge top. I drew a classic megaphone top on the chart to show a typical way this move would end (green scenario).

But you never want to short a price channel melt-up set-up until a top completes because these price channel set-ups can complete with huge vertical blow-off top moves (pink scenario).

Price Channel Melt-Up Set-Ups Often Complete with a Big Vertical Move

Although QQQ has maxed out the number of waves in its price channel melt-up set-up, it has to complete with a top and there’s no confirmation that it has even started a top.  And the top it eventually starts to form could be an extremely thin, fast-moving, vertical rising wedge that carries the price all the way to 140.

The blue rising wedge would usually break out downwards, but they do sometimes break out upwards into huge, fast moves.

How to Play It

I’m watching for QQQ’s price action at the top of the orange price channel. A pierce of that followed by a partial pullback then another breakout would mean a rising wedge top, even a blow-off top.

If QQQ returns to the orange channel bottom after reaching or piercing its top, it means it’s forming a more conventional megaphone or H&S top.

 

Critical Decision Point for IWM

IWM is Back at the Top of its Red Megaphone

IWM is Back at the Top of its Red Megaphone

IWM is back at the top of the big red megaphone that it’s been working on since December of 2013.

IWM is now at a critical decision point for whether to remain in this megaphone for years or put in a megaphone top inside the formation that would allow an upwards breakout from it after a retrace to VWAP (green scenario).

If IWM puts in a significant break through the red megaphone top, it is likely to take some time forming a large top (pink scenario) before a plunge to and through the megaphone bottom.

The purple scenario represents the green scenario with a trip to the megaphone bottom before another trip to its top.

ES Big Flat-Bottomed Megaphone on the Weekly Chart

Red Flat-Bottomed Megaphone

ES Flat-Bottomed Megaphone on the Weekly Chart

ES Flat-Bottomed Megaphone on the Weekly Chart

The technical target for the ES upwards breakout from its big head and shoulders is roughly 2400. But ES also has a giant flat-bottomed megaphone (red) on the weekly chart, and ES could go all the way for its top on this move.

Orange Rising Megaphone

However, ES has formed a rising megaphone (orange) on the way up out of its early 2016 low, and it has just reached the top of that formation.  Moves like this don’t end on an exact touch on a formation top, so ES will either pull back here and put in a new high inside the rising megaphone, or it will break through the top to put in a topping pattern on its top.

Mandatory retrace to 2150

ES has a mandatory retrace requirement at 2150 (from megaphones discussed in earlier posts), which happens to be at the orange rising megaphone bottom if ES gets there fairly soon.  If ES breaks down through 2150, it will also be breaking out of the orange rising megaphone, setting up a trip to at least its bottom but more likely the bottom of the red flat-bottomed megaphone.

Big Moves Ahead

If ES reverses on the dip to 2150 and puts in a new high, it will be redrawing the orange rising megaphone for a huge move.  Any breakout to another new high before a small breakout through the red megaphone bottom would be an upwards breakout from the red flat-bottomed megaphone with a target roughly 600 points higher.

If ES instead makes it to the bottom of the red flat-bottomed megaphone, it can either break out into a crash with a technical target 600 points lower, or it can put in a fake breakout that reenters the flat-topped megaphone with a target of a small new high in the formation.

Other Formations Confirm

I’ve been posting for months on other trading formations (megaphones and rising megaphones) on the ES long-term charts. Those trading formations confirm the set-ups and targets from the trading formations discussed above.

GDXJ Inverse H&S

GDXJ Inverse H&S (Red Neckline)

GDXJ Inverse H&S (Red Neckline)

GDXJ has an inverse H&S bottom on its long-term charts (red neckline).  It’s also formed a megaphone off the bottom (blue) and just put in the retrace to VWAP that makes the megaphone legal for an upwards breakout.

That means GDXJ could head straight up from here for a breakout from the inverse H&S, with a target of roughly 100 (green scenario).

The purple scenario represents a triangle right shoulder on GDXJ’s inverse H&S, with follow-through on a larger inverse H&S set-up.

The orange scenario represents a breakdown through the blue megaphone VWAP for a new low near zero.  The odds of this are extremely small.

The pink scenario represents a false breakout through the red inverse H&S neckline to put a megaphone right shoulder on the formation.  If you see GDXJ reenter the inverse H&S after a small breakout, get ready to buy the dip just below 25.

The longer GDXJ spends down here forming a right shoulder, the more likely it is to break out quickly through 100 when it finally heads up.

QQQ Maxes Out Price Channel Melt-Up

QQQ is Maxing Out the Price Channel Melt-Up Set-Up Inside Its Blue Rising Wedge

QQQ is Maxing Out the Price Channel Melt-Up Set-Up Inside Its Blue Rising Wedge

QQQ confirmed a price channel melt-up set-up at its last trip to the bottom of the blue rising wedge on the daily chart.  Now it’s maxed out its price channel roll-ups and is heading up into the start of a top.

QQQ can start the top on this melt-up anywhere inside the rising wedge or a little bit through its top.  The only thing it can’t do is complete this rising wedge with an exact tag of the rising wedge top.

The top on this melt-up within the rising wedge can end with a megaphone, head and shoulders, triangle top or smaller rising wedge top.  QQQ could even tag its blue rising wedge top, return to the rising wedge bottom, and then extend the blue rising wedge with two more higher highs between tags of the wedge bottom.

Once ES completes the blue rising wedge, it must retrace to at least the level of the lowest touch on its bottom.  But it could correct a lot further.

When QQQ Retraces to Its Blue Rising Wedge Bottom, It's Also Retracing To the VWAPs of Two Megaphones & Could Collapse to Their Bottoms

When QQQ Retraces to Its Blue Rising Wedge Bottom, It’s Also Retracing To the VWAPs of Two Megaphones (Gray & Navy) & Could Collapse to Their Bottoms

When QQQ retraces to its blue rising wedge bottom it will also be putting in a mandatory retrace to the VWAPs (volume-weighted average prices) of two long-term megaphones (gray and navy on the chart above). If QQQ breaks out through those VWAPs, the next target would be the megaphone bottoms.

Ultimately QQQ must retrace to the bottoms of the blue and silver rising megaphones on the long-term chart above (the blue formation’s bottom is at 42).  But QQQ could extend this move up (purple and rose scenarios) before completing that retrace.

ES Critical Decision Point

ES has Reached the Top of its Blue Rising Megaphone and Rose Megaphone - Continuing Up From Here would Imply a Bigger Drop After

ES has Reached the Top of its Blue Rising Megaphone and Rose Megaphone – Continuing Up From Here would Imply a Bigger Drop After

ES has reached the top of its blue rising megaphone and rose megaphone. The rose megaphone requires a pullback to its VWAP (volume-weighted average price) at 2150 to be legal for a breakout upwards.

The orange rising megaphone also requires a pullback after completion to 2150.  The blue rising megaphone eventually requires a pullback to 1960.

This is one of those spots where ES either has to stop for a quick immediate dip to 2150 (purple scenario) that would imply another new high after the dip or it’s going to break through those formation tops and put in a top that requires a much bigger pullback (green scenario).