Megaphone and Neely

When Different Systems Call for the Same Thing

ES is Working on the Blue and Red Megaphones

ES is Working on the Blue and Red Megaphones

Neely put out another public call over the weekend for a major drop in the S&P. He called for an initial violent decline to below 2200 to “jolt” the markets and establish the pre-jolt high as the top for the next few years. He says the bear market will end with a retest of 1000 three to five years from now.

It just so happens that the violent decline to below 2200 scenario is virtually required by my own charts.  ES is working on the blue and red megaphones on the daily chart above.  It is redrawing the red megaphone top, which means it will need a trip to the red megaphone bottom after it completes the move out of the March 27 low.

ES also requires a retest of the navy blue megaphone VWAP at roughly 2150.  And a fast move to 2150 would complete both the mandatory retrace of the orange rising megaphone and mandatory retest of the navy blue rising megaphone bottom.

The Critical Decision Point

My trading system would then require a retest of the red megaphone VWAP at 2350.  From there, my system could put ES into a drop to some megaphone bottoms at 1800 and beyond or it could send ES off upwards into a blowoff top to 3000.

Neely expects the drop.

Neely put out some charts weeks and months ago that anticipated a top at right about where ES is now.  My megaphone set-ups suggest a top a bit higher, and taking a bit longer to complete.  But since ES is establishing a brand new top on the red megaphone, it could turn any time.

ES is retesting the top of some very long-term trading formations today (the navy blue line I keep writing about).  If it gets through 2400 today, it’s recrossing that line.

The bright blue megaphone VWAP is at 2385.

Glenn Neely runs a fund that trades his method and offers trading advice at Neowave.com and is author of The Neely Method, a book from which I’ve learned a number of valuable trading set-ups.

Oil Update

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

Oil continues to work on the right shoulder of its inverse head and shoulders bottom (blue neckline).

Oil is working on a megaphone or triangle right shoulder on the formation.  Because the last trip to the bottom of the red megaphone reversed so close to the previous red megaphone low, oil is likely to reverse on this bounce to the megaphone VWAP to put in a lower red megaphone low or even a double bottom for the inverse H&S (green scenario).

If instead oil starts a new megaphone across VWAP, it’s likely forming a triangle right shoulder (purple or orange scenario).

Oil could also put in a Sornette set-up at VWAP for a fast swing back up to the blue neckline before a return to VWAP (not drawn).

Oil could also morph the inverse H&S into a triangle that breaks out downwards into a final low for the correction off the 2012 highs, but that is less likely.

Contango vs Backwardation

Basically, oil is in contango (see post on contango and backwardation), and its happy place right now is 50ish. Goldman is warning that if oil can’t move into backwardation double quick, it’s likely to have a hard move down (green scenario).

Dollar Update

DX Put a Falling Wedge Right Shoulder on its Rising Megaphone (Orange) H&S Top (Red Neckline)

DX Put a Falling Wedge Right Shoulder on its Rising Megaphone (Orange) H&S Top (Red Neckline)

DX put a falling wedge right shoulder on the head and shoulders top for its orange rising megaphone—first time I can remember seeing that.

The rising wedge broke out downwards, of course, but it’s a small formation.  That suggests a target closer to the light blue megaphone VWAP than its bottom.

The orange rising megaphone retrace target is its bottom.

DX could go all the way for its light blue megaphone bottom but is a favorite to bog down at VWAP at roughly 95 and start a series of new megaphones inside megaphones there.

The green scenario would suggest a head and shoulders top is forming with a target of roughly 76.  I don’t buy that (I’ll trade it, though, if it happens).

The purple scenario would suggest a triangle continuation pattern is forming between the May 2016 low and January 2017 high.

New ES Rising Megaphone Means Still Higher

ES Rising Megaphone Means Higher High

New High Puts a New Rising Megaphone on the Chart (Silver)

Alas, ES could not manage a fast stab down before the holiday weekend. Now, with another new all-time high, it’s confirmed a new rising megaphone (silver) on the chart.

Rising megaphones usually top with a head and shoulders that would require still another new all-time high after a pullback.  That means ES is clearly forming a significant top here.

We’ll likely see a head and shoulders form across 2350, and there will be a good chance of a megaphone right shoulder on the formation that extends the move sideways for weeks or months (purple scenario).  If we get a triangle right shoulder (green scenario), it will be a strong favorite to break out downwards to at least 2150 and almost certainly to the 1800ish.