IWM Retest of Major Rising Megaphone Bottom

IWM Retested the Bottom of its Long-Term Rising Megaphone (Purple) Today - Next Target is Pink Megaphone Bottom

IWM Retested the Bottom of its Long-Term Rising Megaphone (Purple) Today – Next Target is Pink Megaphone Bottom

IWM retested the bottom of its long-term rising megaphone top today.

It should continue down from here to the bottom of the major pink topping megaphone before a bounce back to its VWAP.

If IWM should reenter the rising megaphone instead, it’s likely headed to a little over 120 to tag VWAP of its interior topping megaphone.

Breakdown of Today

Today's Price Action was Most Likely a B Wave (Connecting Wave) Before Another Move Down

Today’s Price Action was Most Likely a B Wave (Connecting Wave) Before Another Move Down

ES has a topping triangle (navy blue) on its chart at the top of last week’s weird Neely rising wedge. It’s already broken out downwards from that triangle to VWAP of a larger topping megaphone (bright blue).  From there it bounced into what looks to me like a B wave (or connecting wave) before a fast move to the bright blue megaphone bottom.

That megaphone bottom will probably redraw itself on this drop so that it will be less steep.

The B wave is both a megaphone and an abc into a head and shoulders.  The head and shoulders has broken out through its neckline after hours.  The market could still throw some curves, but it’s a good bet the move off last Monday’s low has topped and is started into a move down to take out that low.

If you’re already short, I’d just hang on until the price takes out last Monday’s low.  (If something changes, I’ll post it.)  Last Monday’s NYMO close below -100 is such a strong set-up for a short to a lower low that you really don’t want to bet against it unless an actual set-up shows up to cancel it, which I doubt.

If you’re not short yet and you want to play this move, I’d short from a breakout downwards from a topping formation at either the pink or blue megaphone VWAP after a bounce to that VWAP from the megaphone bottom.

Otherwise, if you’re waiting for a set-up to go long, I’d wait for ES and SPY to take out last Monday’s low.  There will be multiple set-ups down there to get long, including a genuine upwards breakout through the level of that low after a lower low.  The upwards target will depend on how big of a drop the price makes from the neckline of the H&S on the daily chart.

 

Trading Notes

The California lunch hour crowd’s buying was so aggressive it may be bearish.  The buying off the channel low increased the odds of a triangle forming here.

If–that’s IF–a triangle forms here (green scenario on chart below) an H&S is completing on a connecting wave down to some megaphone bottoms.

If a Triangle Forms Here (Green Scenario) It's Bearish

If a Triangle Forms Here (Green Scenario) It’s Bearish

If a megaphone forms instead, it would typically mean a squeaker new high past today’s high so far.

Potential Price Channel on 2-Minute Chart (Updated)

A Lower Channel Low Would Put ES in the Critical Decision Wave of its Red Price Channel

A Lower Channel Low Would Put ES in the Critical Decision Wave of its Red Price Channel

A lower low within the red price channel would put ES in the channel’s critical decision wave between starting a bottom and setting up a breakout into a melt-down channel.

A meltdown would target roughly 1900 before a likely pullback to ES 1960ish. A bottom here would likely set up a move into the head of an H&S top or maybe just a retest of Friday’s high if a triangle top is forming.

Update:  Forgot about pink interior megaphone on chart, which would usually require a bounce off roughly 1950 back to roughly 1966 before breakout to larger megaphone bottom at 1900.

Also note that a bottoming pattern could also turn into a continuation pattern.