SPY Closes at Short-Term Megaphone Top

SPY Closes at Short-Term Megaphone Top on Daily Chart

SPY Closes at Short-Term Megaphone Top on Daily Chart

Today SPY closed at its short-term megaphone (purple lines) top on its daily chart (above), though it has not quite reached the top on its 30-minute chart (below). (ES broke through its megaphone top on its daily chart.)

SPY Would Usually Reach Megaphone Top on 30-Minute Chart as Well Before Retrace to Megaphone VWAP

SPY Would Usually Reach Megaphone Top on 30-Minute Chart as Well Before Retrace to Megaphone VWAP

That means a little more creepage higher is likely, though not required, before SPY retests the megaphone VWAP. SPY could also twine around the top of the megaphone for days or even weeks before the retrace to VWAP, but that’s not very likely because the 50 dma will be at VWAP Monday. (In a Sornette bubble, this would be a great time for another test of the 50 dma.)

In any case, whether sooner or later SPY has to return to its megaphone VWAP to make a decision about whether to break out the top or the bottom of the formation.

For this short-term megaphone, there is a double VWAP, with one VWAP at roughly 179.35 and the other at roughly 181. SPY has to make it to the lower VWAP (though this VWAP can move up during the period while SPY is getting there.)

Often when you see a double VWAP, you will see the price make a triangle or megaphone or inverse H&S between the two VWAPs. An upward breakout from the internal triangle or megaphone or inverse H&S would be a set-up to bet on an upwards breakout from the larger megaphone. A downward breakout from the internal triangle or whatever would make the next target the megaphone bottom.

A trip to the megaphone bottom would likely signify the start of a protracted sideways move, like a months-long head and shoulders formation. There’s no way to know for sure if we’re entering a protracted sideways move until we actually see the length of any wave to the megaphone bottom.

A reversal at the purple megaphone VWAP with a breakout through the megaphone top would mean the long-term bull move and Sornette bubble formation has further to go.

QQQ and DIA Can’t Top Here

QQQ has Reached the Top of Its Rising Megaphone - Move Can't End Here

QQQ has Reached the Top of Its Rising Megaphone – Move Can’t End Here

QQQ has reached the top of its rising megaphone (pink lines) this week, but this type of move can’t end on the top of the formation.

Instead, QQQ must break out of the top of the formation, and the breakout will be of a size suitable to the size of the overall formation.

The breakout could play out as the final spike of a Sornette bubble formation (such a spike is essentially a very narrow rising wedge or ending diagonal with each correction smaller than the former one). Or the breakout could play out as a head and shoulders formation moving in and out of the top of the rising megaphone (see chart above).

DIA is in a similar spot. It has broken out of its 10+-year megaphone but has not yet completed other long-term formations on its chart, specifically its rising wedge and rising megaphone (blue and purple on the chart below). It has to complete both formations with suitably-sized breakouts before correcting to the megaphone and wedge VWAP areas at roughly 104.

DIA Long-Term Megaphone and Rising Wedge Formations  - All Must Complete with Breakouts

DIA Long-Term Megaphone and Rising Wedge Formations – All Must Complete with Breakouts

Short-Term Set-Up to Decision Point on the 10-Year T-Note (Updated)

Upward Breakout From Pink Megaphone Targets VWAP of Larger Megapone

Upward Breakout From Pink Megaphone Targets at Least VWAP of Larger Megaphone

The 10-year has formed a small (pink lines) megaphone extension to a wave within a larger (silver lines) megaphone.

The smaller megaphone looks like it’s reversing at the megaphone VWAP for a breakout through the top. That breakout would target at least VWAP of the larger megaphone and possibly the larger megaphone top.

If the 10-year instead reverses at the silver megaphone VWAP, it will break out the bottom of the silver megaphone.

A breakout from the silver megaphone in either direction targets the side of the navy blue megaphone on the chart below.

10-yr ^-month Megaphone (Navy Blue)

10-yr 6-month Megaphone (Navy Blue)

A breakout through the top of the silver megaphone would be highly likely to lead to a breakout through the top of the navy blue megaphone. That would mean the 10-year had just put in a significant longer-term bottom.

In other words, an upward breakout from that little pink megaphone is a chance to get in at the bottom of a major longer-term move.

Update: The 10-year broke down through its pink megaphone VWAP during New Year’s Eve trading, which changes the short-term scenario a bit, though the potential valuable entry on a long-term move remains the same.

The major change is that the 10-year must either complete an inverse H&S across its pink megaphone VWAP, or make it all the way to the bottom of the pink megaphone before returning to VWAP and its true breakout direction decision. See the chart below.

10-year T-Note Break Through VWAP Changes Short-Term Scenario

10-year T-Note Break Through VWAP Changes Short-Term Scenario

Oil Breaks Through VWAP of Short-Term Megaphone

Oil Has Broken Down Through VWAP of its Shortest Term Megaphone

Oil Has Broken Down Through VWAP of its Shortest Term Megaphone

Oil has broken down through VWAP of its shortest-term (pink on chart) megaphone, which is essentially an extended wave of a larger megaphone.

The next target is the bottom of the pink megaphone, which oil ought to hit at roughly VWAP of its larger (blue on chart) megaphone.

If the price reverses there, oil will break out the top of both megaphones for a major run up.

If the price crashes through the blue megaphone VWAP, it’s headed to the blue megaphone bottom. Here’s how the scenarios would likely play out on the long-term chart.

Oil Megaphone Scenarios Within Long-Term Triangle

Oil Megaphone Scenarios Within Long-Term Triangle