QQQ Chooses Megaphone

QQQ Selects a Megaphone Top

QQQ Selects a Megaphone Top

Yesterday at the open I showed that QQQ and NQ had a choice of plunging to start a megaphone top or continuing up to form a rising megaphone or rising wedge top.

The Nasdaq put in a little plunge to choose the megaphone top then promptly retraced to the megaphone (navy blue) VWAP.

QQQ could plunge straight from here to the bottom of the red megaphone (pink scenario), retrace to the red megaphone VWAP, then keep going down.  But it’s a strong favorite to put in another move to the navy blue megaphone top (green scenario). That’s because it broke out of the light blue rising megaphone without having formed a proper head and shoulders top inside it.

And it could keep megaphoning after that to morph the potential H&S top into a rising wedge top (purple scenario).

 

NQ has Maxed Out a Set of Price Channels

Nasdaq Futures (NQ) have Maxed Out a Set of Price Channel and Started a Top

Nasdaq Futures (NQ) have Maxed Out a Set of Price Channel and Started a Top

NQ has maxed out a set of price channels to its orange and silver megaphone tops using a system from The Neely Method for counting price channel waves plus traditional methods for drawing rollover channels.  Now NQ has to have started a top for the move out of the July 4th low.

But you can’t short yet.  Although you will occasionally see a very small fast top at the end of maxed out price channels, a protracted megaphone top (green scenario) is more likely and something like a rising wedge or rising megaphone top (pink scenario) would also be typical.

The pink scenario could also change the potential H&S on the chart (purple scenario) into a rising wedge top with another new high after the pullback to the orange megaphone VWAP.   You never know what kind of topping pattern you have until it completes and actually breaks out.

IWM is Poking at Important Lines

The Pink Rising Megaphone Means IWM Needs to Get Cracking

IWM is Picking at Its Red Megaphone Top and the Bottom of its Big Light Blue Rising Megaphone

IWM is Picking at Its Red Megaphone Top and the Bottom of its Big Light Blue Rising Megaphone

IWM is still trying to work its way back to the bottom of the pink rising megaphone within its multi-year red megaphone and navy blue rising megaphone.

It’s picking at its red megaphone top and the bottom of its old light-blue megaphone as it works on what’s like the head of a head and shoulders top for the pink rising megaphone.

As always for a rising megaphone top, timing is important for the pink rising megaphone.  Rising megaphones provide great short set-ups when they top with a head and shoulders that breaks out at the same time as the price breaks out through the rising megaphone bottom.

That means IWM needs to get cracking on a trip to the pink rising megaphone bottom, put in a right shoulder bounce, and break out. Otherwise it’s either going higher (light blue scenario) or it’s going to drag out this top some other way.

The H&S Scenario vs the Megaphone Crash Scenario

After IWM finally completes a top for the pink rising megaphone, it’s going for at least the red megaphone VWAP (green scenario) and possibly its bottom (purple scenario).

A trip to the red megaphone bottom would set up a melt-up to the megaphone top.  A reversal at the red megaphone VWAP would set up at least a move into the head of a head and shoulders top for the navy blue rising megaphone, and possibly a genuine breakout from the red megaphone in an extension of the navy blue rising megaphone.

The Sornette Bubble Blow-Off Top Set-Up

An IWM stab at the red megaphone VWAP that doesn’t get all the way to VWAP would start my adrenaline pumping.  A hard reversal above VWAP and a second attempt at selling near the red megaphone top that ends up breaking out upwards would confirm a monster Sornette melt-up set-up on the daily, weekly and monthly charts (orange scenario).

We’d be looking at a target near 200ish and IWM could go much higher.  The move would be very fast.

You could even make a case that IWM has just put in in the second bobble of a Sornette melt-up set-up and is breaking out of it right now.  A Sornette melt-up set-up is essentially a megaphone that breaks out without a retrace to VWAP.  Instead it puts in two smaller pullbacks (bobbles) as the megaphone breaks out.

That’s less likely because the first pullback was so low (the pullback into the October 2016 low) and because of the extended bog-down at the red megaphone top, which began last December.  Usually the second bobble of a Sornette melt-up set-up is faster than the first.  The idea is that the move should be gaining speed, not losing it.

The Difference Timing Makes

The Fast Top Scenario at Friday's Open - Didn't Play Out Because QQQ Bogged Down

The Fast Top Scenario at Friday’s Open – Didn’t Play Out Because QQQ Bogged Down

The chart above is the fast top scenario from Friday’s open. If QQQ hadn’t bogged down at 144 for the last four hours of the trading day, QQQ would likely be crashing now.

QQQ's Stall on Friday Means It is Unable to Complete a H&S Top Here Inside the Blue Rising Megaphone

QQQ’s Stall on Friday Means It is Unable to Complete a H&S Top Here Inside the Blue Rising Megaphone

Instead, QQQ’s stall on Friday means it can’t complete a head and shoulders top here inside the blue rising megaphone.  It could still complete a H&S top across the blue rising megaphone bottom (pink scenario), but that scenario is so rare I used to think it didn’t exist.

Friday’s stall means QQQ is a strong favorite to put in a higher high outside the blue rising megaphone if it breaks out of the megaphone here (purple scenario).  Otherwise, QQQ should continue melting up the blue rising megaphone, typically forming a rising wedge or rising megaphone extension, until it forms a H&S somewhere near the top of the red megaphone.

But if anything can trigger the rare pink scenario, it would be something like a surprise FOMC announcement, so you can’t get too smug about long positions.