The SPY put-call ratio jumped to 2.67 today. Normally that would be enough of an extreme to hit the ratio’s top Bollinger Band, but that’s just under 3.0 at the moment. A ratio of 2.67 is still high enough to be a contrary indicator.
Gold tried for a downward breakout from its pink megaphone and failed. Instead, it turned the attempt into a triangle (blue in chart) that broke out upwards today.
A retest of the blue triangle top would be a retest of the pink megaphone VWAP, and would make gold legal for an upward breakout from the pink megaphone.
Gold has a mandatory retrace target at 1375 (call it 134 and change on GLD). An upward breakout from the pink megaphone ought to get it there.
ES has a dozen things going on right now in its short-term charts, but the most important one for the moment is a rising wedge (navy blue on chart above).
First, rising wedges that form during an options expiration (today was the expiration date for quarterly index options) tend to lead into a bigger move up.
Second, the precise turns on the sides of the wedge tell you that nothing important is going on. There is no ma and pa panic selling, no big money scramble. All that’s going on is bots and technical traders moving the price around as options get closed out or rolled.
The ES short-term megaphones are now legal for upward breakout after a dip to the formation VWAPs last night. But you’d often see ES and SPY take another dip to an old lower VWAP (1942.75ish/194.90ish) and the orange price channel bottom before breaking out (green scenario on chart).
ES and SPY will only get to the ES 1969-1970/SPY 197.50 area before a retrace to the 1952.50/195.80 area. Then they will be free to take off for the orange price channel top.
ES and SPY have still not ruled out a break through the orange price channel bottom (light blue scenario on chart) leading directly to a large correction.
ES and SPY are forming a megaphone at the bottom of their orange price channel (megaphone is purple on chart). This short-term megaphone needs a dip to the formation VWAP before it’s legal for an upward breakout. The price could go all the way to the megaphone bottom and a new local low before returning to VWAP to make a decision.
The purple megaphone has formed at the bottom of a larger megaphone (red on chart). A downward breakout from the purple megaphone would complete the red megaphone, however the location of the purple megaphone makes it more likely to break out upwards.
If the purple megaphone breaks out upwards, the price will go to the red megaphone top, then back to the red megaphone VWAP to pick a longer-term direction. Most likely, if the price makes it to the top of the red megaphone again, it will be taking off for the orange price channel top after the retrace to VWAP.
What all of this conflict is about is the market deciding which way to break out of its 2-year+ rising wedge (see later stages of this rising wedge on chart below, with breakout scenarios).
A downward breakout would start a complicated series of plunges and retraces. The SPX would dip to at least 1890-1900ish and could go as far as 1200ish, though it could put in a new high before the larger correction.
An upward breakout would likely lead to a series of steepening price channels and a blow-off top. There are theoretical targets as high as 2560 for a blow-off top.
The SPY put-call ratio fell to 1.63 today. It’s a little below its 20 dma, almost back at normal levels.
SPY put volume fell by 19% today on a moderate rise in open interest (though open interest is still low). SPY call volume fell by 10%. Next week’s options expire July 3, yet both bulls and bears continue to stand pat, waiting for the other side to fold.
However, the index put-call ratio (CPCI) rose to its top Bollinger Band today (see chart below). That’s important because Monday is a quarterly index options expiration day. Continue reading
If we get the retrace here that we’re supposed to, we may have a set-up for new longs. I’ll post.
I recalculated the navy megaphone VWAP. It’s more like 1948 on ES, a little higher than I drew on the chart.
Update: Here’s the SPY version of the likely bottoming megaphone (navy blue on chart below).
Also, ES and SPY don’t have to turn on a dime here. They could megaphone around today’s high for a while, or twine up their megaphone tops for a while first.
Megaphone rules require FEZ to retest its red megaphone VWAP soon (horizontal red line). FEZ could then move through VWAP to the red megaphone bottom, or reverse there for a breakout through the top.
FEZ could also make another trip to the interior megaphone top before the red megaphone VWAP retest, although I couldn’t fit this scenario on the chart without cluttering it up too much.
Note the potential head and shoulders on the chart (purple scenario). But if that right shoulder starts forming a megaphone, most likely the H&S will fail and FEZ will make a new high after a couple of fake neckline breakouts.