Bad Triangle Breakout

ES Broke Out Downwards from its Gray Triangle but with a Tell that There's More to Come

ES Broke Out Downwards from its Silver Triangle but with a Tell that There’s More to Come

ES broke out downwards from its silver triangle, but the breakout came after an exact touch on the triangle top.

Breakouts after exact tags of important lines usually don’t last.  They suggest the move’s been controlled by technical traders, and moves controlled by technical traders usually get run over.

I’ve redrawn the ES rising megaphone set-up on the 60-minute chart as a rising megaphone (orange) inside a likely larger rising megaphone (blue) to reflect that ES is likely to go higher before a correction to 2150 (green scenario).

Neely Set-Up for a Big Move Down

ES continues to form its triangle (see yesterday’s post).

Neely sent out an email to non-subscribers saying that he’s expecting the top that’s forming now to lead to a big downwards trending move that starts in February or March.  I won’t post his charts but his set-up translates into my green scenario in the chart below.

Neely is Looking for a Big Move Down Coparable to the Green Scenario

Neely is Looking for a Big Move Down Comparable to the Green Scenario

I’ve simplified the green scenario for clarity, but it would almost certainly put in a bounce off the neckline at roughly 1800 for a right shoulder on the potential head and shoulders top.  The right shoulder would likely retest the bottom of the blue rising megaphone.

The green scenario is a classic megaphone right shoulder on the H&S that formed between September 2014  and roughly August 2015.  Usually with a megaphone right shoulder you’d see a new high for the head on a larger H&S that will actually complete and break out downwards.

The purple scenario represents one last rising megaphone forming off the 2011 high and low.  That rising megaphone is not required.

Note that Neely sees ES reaching almost 2400 before the big correction begins.  That would likely mean a new high after a dip to roughly 2150 to complete the top of the top.

I’m starting my holiday today but I’ll be checking charts daily and will post next week if something important happens in ES/SPY, oil, gold, or the dollar.  Otherwise I’ll see you January 3.

ES Triangle

ES Triangle

ES Triangle

ES appears to be forming a triangle in the right shoulder spot of a head and shoulders top for the orange rising megaphone. ES is now back inside the rising megaphone.

Usually this triangle would break out downwards after completion to put a top on the move out of the November 11 low. It could also be a top on the move out of the election night low.

If the triangle should break out upwards instead in the light holiday trading, ES will be moving into the start of a top.

DX Update

DX is Working on a H&S Top for its Blue Rising Megaphone Before a Likely Pullback to the Bottom of the Red Megaphone

DX is Working on a H&S Top for its Blue Rising Megaphone Before a Likely Pullback to the Bottom of the Red Megaphone

DX broke through the top of a flat-topped megaphone back in mid-November, and then hung around without really taking off.  That usually means it’s turning the flat-topped megaphone into a conventional megaphone (orange on chart).

DX also needs to retrace to the bottom of its blue rising megaphone.

DX could be completing the top before the dip right now, or it could work its way higher in another leg up for a taller head on a H&S top for the head of a larger H&S for the blue rising megaphone.

Euro futures have confirmed a falling wedge bottom.

Euro Futures Falling Wedge Bottom

Euro Futures Falling Wedge Bottom

Potential Rising Megaphone on ES 60-Minute Chart

If ES Puts in Another New High it will be Confirming the Blue Rising Megaphone

If ES Puts in Another New High it will be Confirming the Blue Rising Megaphone

If ES goes for the red megaphone top and another new high, it will be confirming the blue rising megaphone on the 60-minute chart.  Those are always nice because they usually provide a strong short set-up when they complete (purple scenario).

ES could also reverse here or form a triangle here before breaking out downwards from the red megaphone.  But with light holiday trading and 2300 just overhead, the purple scenario is more likely.

Scenarios on Long-Term SPY Chart

Scenarios on Long-Term SPY Chart

ES must retrace to 2150. It could put in another new high from there or it could continue through 2150 to 1950. If it gets through 1950, it’s going for roughly 1800.

GLD is Nibbling at the Bottom of its Long-Term Rising Megaphone

GLD is at its Critical Decision Point at the Silver Megaphone VWAP & Long-Term Rising Megaphone Bottom

GLD is at its Critical Decision Point at the Silver Megaphone VWAP & Long-Term Rising Megaphone Bottom

GLD is nibbling at the bottom of its long-term rising megaphone (red) and VWAP of the megaphone (silver) it’s been forming since September 2014.

It’s a favorite to either break out directly to the silver megaphone bottom (green scenario) or form a triangle here before it does.

If instead it breaks out upwards from the potential inverse head and shoulders on the chart (blue neckline), either straight from here or from a triangle right shoulder, the minimum target is in the 160 area, but it could melt up to another new all-time high.

Oil Triangle vs Price Channel

If Oil Puts in a New High in its Potential Price Channel (Red) Before Breaking its Bottom, It's a Potential Melt-Up Set-Up

If Oil Puts in a New High in its Potential Price Channel (Red) Before Breaking the Channel Bottom, It’s a Potential Melt-Up Set-Up

Oil has bounced off the bottom of a potential price channel (red on chart). If it should make a new channel high before breaking the channel bottom, it will be in its critical decision wave for setting up a melt-up vs. forming a channel top.

A melt-up set-up (purple on chart) would target 75.

If oil kills the price channel set-up or elects to form a channel top on a new high instead of breaking out into a melt-up, it’s forming either a triangle (navy blue on chart above) or a megaphone.

Here are the scenarios on the 60-minute chart:

Oil Scenarios on the 60-Minute Chart

Oil Scenarios on the 60-Minute Chart

The green scenario is the most likely at the moment.

Topping

ES has Formed a H&S or Megaphone Top and Broken Out of its Blue Rising Megaphone

ES has Formed a H&S or Megaphone Top and Broken Out of its Blue Rising Megaphone

ES has broken out of its blue rising megaphone top, but failed to complete a head and shoulders top inside it.

That means about 10% of the time it would break out downwards from a retest of the rising megaphone bottom, which it’s just tagged now, and 90% of the time it would go for another new high before breaking out downwards from a megaphone top.

2300 is within reach, and megaphones always have ways of extending a move by drawing megaphone tops on megaphone tops on megaphone tops, especially during light holiday trading.

Scenarios on Long-Term SPY Chart

Scenarios on Long-Term SPY Chart

ES needs a retrace to at least 2150 and then roughly 1950, but it could put in another new high between those two numbers (purple scenario). It could also put in a drop from here to roughly 1800 (orange scenario). The green scenario represents an extended 5th wave within the light blue rising megaphone.

ES and SPY are working on a set of rising megaphones inside rising megaphones and have a lot of options for how to complete them.