Gold has formed a series of interior megaphones across the VWAP of larger megaphones. Usually once you get to a clear interior megaphone across VWAP of a larger interior megaphone, odds are high that a larger triangle is forming (navy blue on chart).
Trading Economics has recreated the euro from its legacy currencies to come up with the long-term euro chart above. The chart suggests a giant triangle around a VWAP at roughly the 1.2 level.
A move to the bottom of the potential triangle seems likely, but the euro seems to like to megaphone across VWAP before making a big move to one side of the big triangle or the other. That could drag things out.
ES would usually retest the 20 dma after a run like yesterday’s during December opex. A retest of the 20 dma would be a retest of the top of the orange falling megaphone if it happens today or Monday.
ES seems to be starting the topping megaphone for this move. After the small starting waves, we should see a bigger wave up that may extend a bit with an interior topping megaphone.
The megaphone should both get the price back to the 20 dma and give the market its holiday rally.
Oil is already megaphoning and the euro appears to have started a small megaphone as well.
As discussed, the SPY put-call ratio fell to its lower Bollinger Band today on a strong price rise. This is standard for December opex weeks.
Tomorrow’s trading should close with the ratio back at roughly its 20 dma. That could happen on a retrace or a sideways price move. A typical retrace in this spot would be to the 20 dma.
SPY put volume fell only a trivial amount today on a large rise in open interest. SPY call volume rose 134%.
ES broke out of its bottoming triangle (after completing a falling wedge) overnight.
Now it has returned to the top of its falling megaphone (orange on chart). It could pause here for a bit or even retrace from here to retest the triangle top, but it’s not a good place to short, because the price will often blast right through a falling megaphone top.
ES could have set up a likely reversal here to a lower low in a number of ways. It didn’t do any of the things it needed to do to suggest we’ll get that reversal or lower low.
That means we’re likely to see a pretty direct move back up to the top of the 3-year price channel.
Once ES reaches the top of its 3-year price channel, it is likely to reverse for a drop to at least ES 1955 and probably all the way to the price channel bottom.
Before this dip, ES could have set up a scenario for a breakout through the top of the 3-year price channel, but it failed to do that. That means it’s likely forming something like a head and shoulders or megaphone within the price channel (green and purple scenarios on chart). ES could also form a big symmetrical triangle (not drawn on chart).
The pink scenario on the chart is not impossible, but odds of it are very low.
The SPY put-call ratio fell to 1.59 today. That would be neutral going into Thursday of most opex weeks. But during the December opex week, the ratio usually falls to its lower Bollinger Band by the close on Thursday. Then it tends to rise to its 20 dma by the Friday close.
That would tend to be bullish for tomorrow.
SPY put volume rose by 1.5% today on a small rise in open interest. SPY call volume rose by 11%.
They say the initial move is usually the true direction.
Yen futures are at a critical decision point between a rising megaphone top (red on chart) and a head and shoulders top (purple scenario).
The head and shoulders is more likely in a spot like this.