SPY Interior Megaphone Set-Up for Probable Final Surge (Updated)

SPY Interior Megaphone (Orange) Set-Up

SPY Interior Megaphone (Orange) Set-Up

SPY has formed a new interior megaphone (orange) within its 3-month (purple) megaphone. It should be a bottoming pattern for the last wave down from the megaphone top.

The orange megaphone would usually take the price to the bottom of the purple megaphone before reversing for a breakout upwards to at least the blue megaphone VWAP at roughly 183.50. The price could also go all the way to the top of the purple megaphone. The price could even break out the top of the purple megaphone after a dip back to the purple megaphone VWAP, wherever it is at that time.

Update: The orange megaphone VWAP has moved up to roughly 178.75 since I posted this.

The Future Gets Clearer

SPY Inverse Head & Shoulders Bottom for Megaphone Wave

SPY Inverse Head & Shoulders Bottom for Megaphone Wave

SPY looks like it’s going to complete its trip to its 3-month megaphone bottom (purple on chart) before retesting at least its blue megaphone VWAP, and possibly heading up to the megaphone top for a breakout.

SPY will most likely complete the trip to the megaphone bottom with an inverse head & shoulders, as in the chart above, or with an interior megaphone  (see chart below).

SPY Interior Megaphone to Purple Megaphone Bottom

SPY Interior Megaphone to Purple Megaphone Bottom

ES seems to be forming an interior megaphone (orange) across its 3-month megaphone VWAP. The differences between the SPY & ES charts make the green scenario in the ES chart below the most likely one.

Most Likely ES Megaphone Scenario

Most Likely ES Megaphone Scenario that would Satisfy SPY Requirements as Well

Essentially, ES would be putting in a final partial wave down within its navy blue megaphone, which means you’d expect to see ES break out the top of its navy blue megaphone. I’ve left out several probable interior megaphones and retraces for simplicity.

If instead ES reverses at its orange megaphone VWAP on its next wave up from the megaphone bottom, everything changes. I’ll post about that if it happens.

 

ES & SPY Pre-FOMC

ES Looks Like It Wants to Retest Its Blue Megaphone VWAP

ES Looks Like It Wants to Retest Its Blue Megaphone VWAP

The SPY and ES charts have important differences, but together they suggest that we’re about to see a rally to the SPY 183.50 area (middle Bollinger Band) before the price continues to the SPY & ES 3-month megaphone bottoms (navy on ES chart above, purple on SPY chart below).

ES looks like it’s forming a small inverse head and shoulders with a neckline at roughly its blue January megaphone bottom. ES and SPY still need a retest of that blue megaphone VWAP before they can proceed much further down, and this would be a classic way to start the trip.

It would also be typical in the final wave of a megaphone (in this case, the larger 3-month megaphone) for a false bottom to form at roughly the area of the previous megaphone low. The January 27th low is in the right area for a false bottom for both SPY and ES. After a false bottom of this type, there is usually a retrace to the megaphone VWAP (which is in roughly the same place as the blue megaphone VWAP), where the price reverses for the trip the rest of the way to the megaphone bottom (lavender scenario on chart below).

SPY Wants to Retest Blue Megaphone VWAP

SPY Wants to Retest Blue Megaphone VWAP

However, if the price reverses at the blue megaphone bottom and then puts in a lower low, the light blue bottoming megaphone scenario on the above SPY chart is probably in effect. It’s just a more complicated way of meeting all the megaphone and interior megaphone requirements, which ultimately reflect market makers taking profits out of a confused sideways market.

And if we see a new interior megaphone form across the blue megaphone VWAP area (green scenario on SPY chart), and it breaks out upwards, you redraw the bottom of the purple (SPY) megaphone (gray line in SPY chart above) and assume a target of a breakout through the 3-month megaphone tops. (It would be legal on ES in terms of standard megaphone requirements, but barely.)

The green SPY scenario would also represent a failed right shoulder on an H&S, and the move up out of that would be explosive.

Remember, Sornette bubble formations are characterized by topping formations that break out upward.

Gold Significant Bottom Forming

Gold is Forming a Bottoming Megaphone

Gold is Forming a Bottoming Megaphone

Gold has a long-term target of roughly 1000 for the correction since the 2011 high, but it’s getting bought sufficiently at this point that the only way it can get down there is with a bottoming megaphone (red on chart above).

Right now gold is working its way to the top of the red megaphone. The way up may get complicated by a possible interior megaphone (navy blue on chart), but after reaching the top gold is almost certain to reverse for a plunge to the megaphone bottom, which should take it to the 1000 target.

Gold will probably form some kind of bottoming formation at the red megaphone bottom. It then becomes a buy to at least 1400 and possibly much higher.