Long-Term View of Gold as an Ascending Megaphone Formation

Gold as Long-Term Ascending Megaphone

Gold as Long-Term Ascending Megaphone

I figured I might as well give you my long-term view of gold.

I was taught a long time ago that all of the great bull runs happen within one kind of triangle or another. For me, gold’s great run has taken the form of an ascending megaphone pattern.

Gold completed the megaphone formation by breaking out the top of the formation in 2011. The price target after a megaphone completes is always either the other side of the megaphone or the VWAP of the entire formation. In gold’s case, the megaphone bottom and the formation VWAP will be in roughly the same place by the time the gold price gets down to them.

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Potential SPX Melt-Up

SPY Put-Call Ratio for Friday, August 30

SPY Put-Call Ratio for Friday, August 30

There’s a potential short-term melt-up scenario setting up on the SPX. Here’s what I’m looking at.

The SPY put-call ratio jumped today from 1.40 to 2.09 on strongly rising open interest. The number of puts jumped today by 76%. The number of calls jumped today by 18%.

SPY and the E-mini had a nice little wave of panic selling at the end of the day that took them both through their 100 dma’s. Maybe that’s when the puts got bought. But neither took out their August 28th low, and the selling on the break through the 100 dma got bought hard twice to set up a potential inverse head and shoulders on a five-minute chart. The E-mini closed just below the 100 dma.

SPY Potential Inverse H&S

SPY Potential Inverse H&S

I have a vivid memory of this exact same set-up leading into a melt-up that retraced something like 78% of the prior move, and I know I’ve seen a very similar kind of set-up more than once in the middle of some of the head and shoulders patterns we’ve seen since the 2009 low. What followed the melt-ups were hard moves down to significantly lower lows.

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Took Out the 100 DMA

Okay, took out the 100 dma on the E-mini and SPY.  That sets up the SPX to pierce the trend line from November 2012.

Meanwhile, the DOW is forming an ending diagonal as it approaches its potential H&S neckline, while IWM’s price channel suggests a higher high to come.

I’ll put together a long post over the weekend.

Danger of DX Megaphone

Danger of Megaphone on the DX

Danger of Megaphone on the DX

The possible breakout from a possible inverse head and shoulders on the Dollar Index is acting iffy, and it’s at a time when euro futures definitely do not have a complete topping formation.

Euro Futures Potential Megaphone

Euro Futures Potential Megaphone

Euro futures could still make a head and shoulders formation, with the DX making some kind of triangle near its inverse H&S neckline, but at this point odds are getting higher for a megaphone pattern for both.

We may see some kind of set-up like a mini H&S on the dollar and mini inverse H&S on the Euro to play a wave to the other side of the megaphone.

It’s also possible these formations complete as very lopsided H&S/inverse H&S patterns, often called diamond patterns. In that case, we’d see both retrace to roughly the 20-day VWAP, then break out (the dollar upwards, the euro downwards).

Oil Crash Scenario

Oil is Back Inside Megaphone Formation on All Charts

Oil is Back Inside Megaphone Formation on All Charts

Oil is back inside its megaphone formation on all charts (20-day, 60-day, daily) for all months and heading for the 20-day VWAP at the middle of the formation. For the October contract the 20-day VWAP is at roughly 106. It’s at roughly 105 on the November contract, and 103 on the December contract.

From the 20-day VWAP, oil could in theory reverse and break out the top of the megaphone formation, take out Syria-scare high, and retest the 2008 high. But in this case, by the time oil gets down to the middle of the megaphone formation and 20-day VWAP, it will have broken out of its rising wedge/ending diagonal formation.

Oil Will Break Out of Rising Wedge Before Reaching VWAP

Oil Will Break Out of Rising Wedge Before Reaching VWAP

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SPY and E-Mini Retrace Target

The 61.8% retrace of the last wave down in SPY and the E-mini is right at VWAP at the middle of their megaphone formations. Elliott wavers often look for 61.8% retraces.

Both SPY and the E-mini should touch the bottom of those formations before returning to the top, so the 20-day VWAP area should be a good area to look for a set-up for a short-term short to the megaphone bottoms.

Yen Futures May Need One More Wave Up

Yen Futures May Need One More Wave Up

Yen Futures May Need One More Wave Up

Yen futures appear to be massing along the bottom of their triangle for a breakout downward.

The formation appears to be a triangle that would need one more small wave up. If the pattern was forming along the upper edge of the triangle, it would be confirmation of a bottom.

This could coincide with a small right shoulder in the DX, or a retest of the DX neckline.

The yen could still also make a try for the top of the larger formation.