PCLN Price Channel Within Long-Term Rising Wedge Could Lead to Plunge

PCLN Confirmed a Price Channel Then Broke Out of it This Morning on the BOJ Yen Meltdown

PCLN Confirmed a Price Channel Then Broke Out of it This Morning on the BOJ Yen Meltdown

PCLN had confirmed a new price channel, then broke out of it this morning on the yen meltdown.

A price channel breakout would usually retest the top of the old channel.  That retest establishes the new steeper channel (as drawn on chart).

Because of the point PCLN was in within its blue channel, the breakout move can either be the start of a topping pattern (green scenario) or a lead-in to a move further up the channel.

These short-term moves are occurring with a long-term rising megaphone that broke out the top and has been making big volatile moves since.  These moves are consistent with the formation of a major top.

PCLN Long-Term Rising Megaphone

PCLN Long-Term Rising Megaphone

Usually a long-term rising megaphone formation would have a VWAP up near where a move to the megaphone bottom would be a retest of VWAP. But in PCLN’s case, the VWAP of the rising megaphone is far below.

That means that after PCLN tops, it’s headed for a breakout from the rising megaphone to get to that retest of VWAP.

Sometimes a price won’t get all the way to a VWAP that far down. Instead, you’ll see it start a sideways move roughly 2/3 of the way to the VWAP. But in those cases, the price will usually be stuck in a relatively small trading range for a very long time (years)–long enough to move the VWAP up to that level.

Where the short-term chart and long-term chart intersect is that PCLN price channels may have it starting a short-term top right now.  If that is the case, that top will be forming across the topping formation VWAP (horizontal pink line on chart).

A downward breakout from a topping formation at that VWAP targets at least the bottom of the long-term rising megaphone, and likely a big breakout through it.

Trading Notes

ES has now completely given up the pretense of having formed a breakout price channel (the potential pink channel on the charts in today’s earlier posts).

That means it’s forming a top here.  But look at the charts below and don’t be the bear who powers a short squeeze.  We could still see a sizable move up as part of a topping formation.  If we see a sizable move up, there will be a little top at the tip of it and we will short from there.

Stay long until we see a formation complete and actually break out downwards.  Make the market prove it.