Corn broke out upwards from a triangle (pink on chart) today, but that breakout is likely within a larger megaphone (blue on chart).
The target for the triangle breakout is the megaphone top. From there corn will likely head down to take out the March 11 low by enough to create an internal megaphone at the top of the blue megaphone. The green scenario on the chart is the more likely based on how megaphones usually develop.
SPY has reached the false top area of its gray megaphone on the chart above. (That stuff is behind us for the smaller megaphones on the chart.)
At false top areas you will often see small topping patterns form and lead to a retrace to the VWAP for that particular megaphone. When you have a series of megaphones embedded within larger megaphones, as we do now in ES and SPY, you can get a false top and retrace to VWAP for each larger megaphone. This can create a lot of volatility without changing the target for the price move.
It can be dangerous to try to trade false tops because they don’t always form. And sometimes they start to form and then give up without completing.
Again, the volatility created by false tops doesn’t change the target for the price move.
The Dollar Index (DX) seems to be completing a false top (blue megaphone). These occur in megaphone 5th waves at roughly the level of the previous touch on the top of the megaphone (pink in chart).
After a false top the price would usually retrace to the pink megaphone VWAP and then break out the top of the pink megaphone. This breakout would represent a breakout across VWAP (horizontal orange line) of a larger megaphone. Then there would be a mandatory retrace to the orange megaphone VWAP.
Also, you have to keep an eye on both the daily and 60-minute charts, because price will often react to something on one that isn’t there on the other. See the chart directly below.
This looks a lot like the potential bullish ES & SPY scenarios.
However, if anything is going to violate normal technical rules, it would be the DX. Here’s the kind of alternate scenario we could see:
AMZN’s been forming a rising megaphone since 2010. A rising megaphone is essentially a bubble formation, though not always a perfect Sornette bubble. It’s built on excess enthusiasm.
AMZN started forming an internal rising megaphone within this formation in April 2012.
Now AMZN has broken out the top of both formations and formed a head and shoulders pattern that looks ready to blow.
AMZN definitely will blow eventually. It’s first target will be the internal rising megaphone VWAP at roughly 257. It will probably form a megaphone across that level. Its final target is theoretically 113-114, which is currently VWAP of the larger rising megaphone (though that level will move up due to the price action before it gets there).
What may keep AMZN from crashing immediately, however, is that the right shoulder of its H&S has formed a megaphone (purple on chart). The megaphone could complete with a small retrace to its VWAP (at roughly 350) and then take AMZN crashing through the H&S neckline (green scenario).
But if AMZN breaks out upwards through that right shoulder megaphone VWAP, the price is headed to the megaphone top and a significantly higher high. The new high would represent the true head of a larger H&S formation (lavender scenario).
It’s essentially the same problem as presented by the current ES and SPY megaphone set-up.
Right shoulder megaphones are usually a warning sign.
ES and SPY have formed what I believe are megaphone 5th-wave false tops from late February through Friday. The false tops are within 4-month megaphones.
False tops generally form near the level of the previous touch on the top of a megaphone, and they always look like real tops.
On Thursday both ES and SPY retraced to the current VWAP for those 4-month megaphones. That’s how false tops complete.
So both ES and SPY are now free to take off upwards, but because the false tops they formed were interior megaphones, I can’t rule out one more dip to those false-top megaphone bottoms.
Oil is forming a rising megaphone top (pink on chart above) for its mandatory retrace to a larger megaphone VWAP at roughly 102. The rising megaphone top will likely carry it up a bit further (see green scenario on chart).
This is the same kind of mini-bubble top gold formed going into its March 16 reversal. You generally see a good crash out of a top like that, so you want to watch for the little topping formation you always see around the formation high, and short the breakout from that.
Tom McClellan has pointed out that commercial net short interest is at a record high.
Oil will never get over 2008.
I’ve already posted that gold is forming a falling wedge.
What’s interesting about the falling wedge is that it has now extended so far that it has almost reached VWAP of gold’s 4-month megaphone (red on Chart 2 below). Usually when a price gets this close to this important of a line it completes the trip to the line.
Because of gold’s falling wedge, and because gold must retrace to its 2-week megaphone VWAP (orange on chart below), odds are high that gold will soon reverse off the red megaphone VWAP for a trip to the top of the red megaphone (first part of green scenario in Chart 2).
Usually when a price reverses at a megaphone VWAP in a megaphone as far along as gold’s 4-month red megaphone, it means the price is going to break out the megaphone top (orange scenario in Chart 2). This would put a flattish inverse head and shoulders on the gold chart with a target a little over 1600. Because gold has not yet reached VWAP (at roughly 1000) of a rising megaphone formation that started in 2006, this scenario would likely result in a larger megaphone formation (blue on Chart 4 below).
A larger megaphone would either get gold to 1000 on the final wave down (orange scenario in Chart 4) or would create so much price action higher up that gold’s long-term VWAP would rise and gold would never return to 1000 (green scenario on Chart 4).
The other possibility is the gold disaster scenario (green scenario in Chart 2), in which gold reverses at 1370 and its red megaphone top for a plunge through the red megaphone VWAP and a crash to the red megaphone bottom at roughly 750.
The most likely scenario at this point is the Chart 4 enlarged megaphone scenario, so if you trade gold this is an important dip. Megaphone 3rd waves like to bottom with an interior megaphone, and the red 4-month megaphone is a tell that a larger megaphone may be forming.