ES End of Day Unanswered Question – Is Complex H&S Real or Fake?

ES is Trying to Decide Between a Complex Head and Shoulders and a Right Shoulder Megaphone

ES is Trying to Decide Between a Complex Head and Shoulders and a Right Shoulder Megaphone

ES is trying to decide whether it’s about to complete a complex head and shoulders (red neckline on chart) or whether it’s putting a megaphone right shoulder on that head and shoulders for a move to a new high (purple scenario, which includes a typical false top at the level of the previous high).

It needs at least a modest swing up in either case (green scenario).  It’s been putting that in after hours.

Because of the 3-year price channel and late-day interior megaphone, the purple scenario is the favorite.  If there were no 3-year price channel on the ES chart, and ES hadn’t formed that neckline megaphone, it would be about a coin flip.

I am outright hoping for the purple scenario, because the green scenario would be a pain in the neck.  That’s because the green scenario would leave a lot of unanswered questions on the chart.  For example, we could not short with confidence in a target at the 3-year price channel bottom.  Instead, after the dip shown on the chart, ES could still go on to a new high and the 3-year price channel top.

The green scenario would force us into a lot of short-term trades on zigzags.

The SPY put-call ratio should tell us a lot when it’s available a few hours after the close.

Declining Megaphone Scenario

Declining Megaphone Scenario

Declining Megaphone Scenario

If the ES overnight megaphone should break out out downwards, there would be a declining megaphone scenario on the chart.

It’s a less likely scenario than a continued move up, but not impossible.  ES needs to take out its existing H&S right shoulder high to confirm a right shoulder megaphone and kill this scenario.

Thanks to Pod for bringing up bearish possibilities.

Note that the retrace off the 2085-2087 area would be bigger than drawn but likely not be the bottom of the falling megaphone.

Euro VWAP Megaphone Key to Next Swing

Euro Futures are Forming a Megaphone Across the Purple Megaphone VWAP

Euro Futures are Forming a Megaphone (Orange)Across the Purple Megaphone VWAP

Euro futures are forming a megaphone (orange in chart) across the VWAP of a megaphone (purple in chart) that began forming in late January.

This is a small megaphone, not a high volume, high drama fight, so it’s likely the euro will break out the orange megaphone bottom to continue down to the purple megaphone bottom (green scenario). It’s also likely the euro will redraw the existing purple megaphone bottom, which is only a guideline for now. Expect the euro to try for 1.00.

But if the orange megaphone should break out upwards, expect a move past the February 3 high to convert the head and shoulders on the chart (red neckline, extended right shoulder) into a megaphone (purple scenario).

The purple scenario’s plunge from the blue megaphone top to its bottom would be interrupted near the orange megaphone low for a partial retrace (not drawn on chart).

ES Overnight

ES has Put In an After Hours and Overnight Retrace and Bottoming Megaphone (Purple) - Now Legal for Upward Breakout

ES has Put In an After Hours and Overnight Retrace and Bottoming Megaphone (Purple) – Now Legal for Upward Breakout

ES put in a small retrace and bottoming megaphone (purple on chart) after hours and overnight.

The little megaphone is now legal for an upward breakout, and the price should continue to form a megaphone right shoulder on the fake head and shoulders discussed yesterday.

And that means odds of a higher high are very high.

ES Likely Fake Head and Shoulders

Likely Fake ES Head and Shoulders with Likely Right Shoulder Megaphone

Likely Fake ES Head and Shoulders with Likely Right Shoulder Megaphone

The chart above shows the most likely scenario for ES from this point. It’s also a classic fake head and shoulders with a likely right shoulder megaphone.

It will take ES taking out the current right shoulder high to confirm the right shoulder megaphone.

But the tell is the megaphoning at the formation bottom.  With a real H&S, the price would usually keep moving down, not get bogged down in megaphones inside megaphones inside megaphones.

Trading Notes

12:02 p.m. Pacific Time:  So here is the attempted little ES H&S breakout and the breakout through the bottom of the orange rising megaphone, both of which are likely fake breakouts.

So now we’re watching for signs of a real vs. a fake breakout.  Specifically, we’re looking to see if a little megaphone bottom is going to form down here and break the price back up through the H&S neckline and confirm a right shoulder megaphone, which would mean a higher high is likely coming.

12:06 p.m.  Pacific Time:  You’d expect to see an interior bottoming megaphone form across roughly 2102.50, and it ought to reach 2101 or even 2000 while forming.  Then you’d expect to see that break out upwards to form a larger bottoming megaphone.

12:13 p.m. Pacific Time:  So now we have a confirmation of a little megaphone, likely an interior bottoming megaphone within a larger bottoming megaphone.  We could still see a lower low from either formation.

12:18 p.m. Pacific Time:  So now we have confirmation of a larger megaphone, which is almost certainly a bottoming megaphone, and which is parent to the little bottoming megaphone talked about above.

12:20 p.m. Pacific Time:  So ES is back inside the neckline of the little attempt at an H&S.  It now has very high odds of putting in a megaphone right shoulder that will take it to a higher high.  Could still see a lower low from here though.  If so, that could be the low of the right shoulder megaphone.

 

Natural Gas Bottoming Megaphone in Bottoming Megaphone

Natural Gas Potential H&S at Megaphone VWAP

Natural Gas Potential H&S at Megaphone VWAP

Natural gas has formed a potential head and shoulders at the VWAP of its bottoming megaphone (silver) within a bottoming megaphone (blue).

If the H&S completes and breaks out downwards through the VWAP neckline, the target is the blue megaphone bottom, where the price should reverse for a swing up to the silver megaphone top, and likely a tag of the blue megaphone top by the time a topping pattern completes.

If instead, natural gas puts in a right shoulder megaphone here, it is legal for a move up to the blue megaphone top.

If natural gas puts in the green scenario, don’t go long until you actually see a bottoming megaphone complete and break out upwards.  Gas could form another bottoming megaphone down there, and then extend the price down further with a bottoming megaphone within that.

Euro Head and Shoulders Breakout Targets Megaphone Bottom

Euro Futures Broke Out as Expected from their Head and Shoulders with an Extended Right Shoulder

Euro Futures Broke Out as Expected from their Head and Shoulders with an Extended Right Shoulder

Euro futures completed a head and shoulders with an extended right shoulder by breaking out through the neckline (red on chart), which was at VWAP of a megaphone that started forming in late January.

The euro will almost certainly redraw that megaphone bottom with this move down, which probably targets roughly 1.00 or a little above.

Then it will probably reverse to up past the head of the H&S.

Take a good look at that head and shoulders, because that is a perfect example of a head and shoulders with an extended triangle right shoulder, and those almost always complete with a breakout downwards.

But that H&S was shallow, and that worries me a bit.

Any megaphone or H&S or triangle can morph into a different megaphone or H&S or triangle.  If the euro reverses at the original bright blue megaphone VWAP, that triangle right shoulder was a B wave within an ABC down to the bottom of a topping megaphone within the megaphone that started forming in January.

That means a new megaphone across that blue VWAP, if the euro starts one here and it breaks out upwards, would take the euro to past the existing H&S head before the run to 1.00.