CLMT – Great Long-Term Set-Up with a Great Short-Term Launch

Neely’s B-Failure Flat Set-Up

A Crash Followed by a Partial Retrace Followed by a Return to the Crash Low is a Set-Up for a Return to the All-Time High

A Crash Followed by a Partial Retrace Followed by a Return to the Crash Low is a Set-Up for a Return to the All-Time High

Glenn Neely’s book, Mastering Elliot Wave (Version 2), provides a useful collection of trading set-ups and data. One particular set-up in Neely’s book that has paid off time and again in recent years is a formation he calls a B-Failure Flat.

You tend to see these formations after crash waves like QQQ’s crash out of the dot-com bubble and the big 2008 plunge in oil. If the crash wave takes a particular form, the reaction wave (or “B wave”) that follows tends to retrace roughly 60% of the crash.  It doesn’t have to be 60%.  It just has to be a significant retrace that doesn’t make it back to the high.

The B wave reaction tops with range trading, typically forming a head and shoulders or megaphone top or an extended triangle, then the price collapses (in a “C wave”) back to the crash wave low.

CLMT (Calumet Specialty Products) is about to complete this pattern.  After it completes a bottom, its next target is the all-time high.

Here’s the set-up on QQQ:

Neely B-Failure Flat Set-Up on QQQ

Neely B-Failure Flat Set-Up on QQQ

Here’s the set-up on oil:

Same Set-Up on Oil

Same Set-Up on Oil

It’s a set-up about a price that is taking huge swings around a correct price roughly in the middle.

A Great Short-Term Entry is Setting Up for CLMT’s Big Move Up

CLMT Opted to Start a Bottoming Pattern in the Critical Decision Wave of its Navy Price Channel

CLMT Opted to Start a Bottoming Pattern in the Critical Decision Wave of its Navy Price Channel

CLMT appears to be putting in an island bottom with a neckline at roughly 6 (see top chart).  Obviously a gap up from an island bottom would be a great set-up to get long.

But for more nimble traders, a beautiful price channel bottoming set-up can get you in closer to the bottom.

Specifically, on the move down out of the early 2017 high, CLMT confirmed a price channel (navy blue in chart above).  And in the channel’s critical decision wave (meaning the new channel low after two alternating touches on both the top and bottom), CLMT took a swing back up to the channel top rather than breaking out the bottom.

That channel provided a beautiful melt-down set-up to zero if CLMT was heading into bankruptcy.  Instead CLMT started a megaphone bottom (pink in chart).  A breakout now through the channel top would target roughly the pink megaphone top at the 200 dma.  A final retest of the 40 dma would be the retrace to the pink megaphone VWAP that would set up a breakout up to the island bottom neckline at 6.

Typically there would be a bit of a consolidation there before the gap up into the big move up.

CLMT would typically bog down at roughly the 30 level on its big move up–usually to attempt a topping pattern like a head and shoulders at the red megaphone VWAP.  The topping pattern would usually end up breaking out upwards to set up a big rising megaphone melt-up back to the all-time high.

We could also see a big Sornette melt-up set-up across 30 before blast-off.

Hat-tip to @jasteindorf1 for the stock. He has personal expertise in this company and product. The view of the stock provided, however, is strictly based on chart trading set-ups, not fundamentals.  Do your own due diligence.

You could long on the price channel breakout and set your stop a little below the pink megaphone VWAP or 40 dma after breaking through.

ES Trading Set-Ups

ES Red Megaphone vs Gray Megaphone vs Blue Falling Megaphone vs Orange Triangle

ES Red Megaphone vs Gray Megaphone vs Blue Falling Megaphone vs Orange Triangle

ES is bogged down in a megaphone (gray) across VWAP (the volume-weighted average price) of the red megaphone.  ES was legal for a downwards breakout from the gray megaphone to roughly 2300, but got stopped by the March 27 low.

Now ES is back at the gray and red megaphone VWAP and a critical decision point.

The Triangle Set-Up

ES could start a new megaphone across the gray and red megaphone VWAPs.  That would almost certainly mean the orange triangle is going to complete (pink and navy scenarios).  It could break out in either direction, but a upwards breakout would be stopped by the red megaphone top, while a downwards breakout would target at least 2150 and could go all the way to 1800 or even year-2011 territory.

The Sornette Melt-Up Set-Up

If ES tries to form a megaphone across the red megaphone VWAP and then breaks out of it upwards without a retrace to VWAP it’s a Sornette melt-up set-up.  This would mean a fast move to the area of the gray and red megaphone tops (purple scenario).

The Falling Megaphone Set-Up

If ES forms a quick head and shoulders top at the red megaphone VWAP and then plunges down to take out March 27 low, it’s confirming the blue falling megaphone (green scenario).

The falling megaphone would usually bottom with an inverse head and shoulders that tags or crosses 2300 before putting in a right shoulder pullback from the falling megaphone top.  When the price breaks out of the blue falling megaphone and inverse H&S, it would be a strong set-up for a move to at least 2390 and almost certainly a new all-time high at the red megaphone top.

Gold Price Channel Update

Gold has Continued Sliding Down its New Red Price Channel and is Now at the Moment of Truth

Gold has Continued Sliding Down its New Red Price Channel and is Now at the Moment of Truth

Gold has continued sliding down the new price channel (red) that confirmed yesterday and is now near the channel bottom where it either breaks out into a melt-down set-up or starts a bottom.

You know that gold is starting a bottom if it reaches the channel top again from here.

Gold Megaphone on Weekly Chart

Gold Megaphone on Weekly Chart

The channel has taken gold back to the VWAP of the megaphone (blue) it began forming in fall of 2014.  That VWAP is at roughly 1200.

That means a breakout from the price channel into a melt-down set-up would be a breakdown through that long-term VWAP with a target of the blue megaphone bottom.

If instead gold starts a bottom here, it is settling in to form a triangle across 1200 (purple scenario) that could break out in either direction.

An upwards breakout would mean a breakout from an inverse head and shoulders bottom with a triangle right shoulder with a target of a new all-time high.

A downwards breakout would target the blue megaphone bottom.

Gold is in New Price Channel’s Critical Decision Wave

Gold has Confirmed the Red Price Channel and is In Its Critical Decision Wave for Starting a Bottom vs Breaking Out Into a Meltdown

Gold has Confirmed the Red Price Channel and is In Its Critical Decision Wave for Starting a Bottom vs Breaking Out Into a Meltdown

Gold has confirmed a price channel (red) for its breakout from the navy blue rising wedge.  The price channel is in its critical decision wave for starting a bottom (green scenario) vs breaking out into a meltdown (purple scenario).

A meltdown would likely stop around 1150-1175, but it could go all the way into the 700s so it’s the kind of set-up you want to play if it occurs.

Price channel melt-down set-ups can also morph into falling megaphones or falling wedges twining along the channel bottom, but these tend to form clear bottoms so it’s easy to get out with at least a small profit when they occur.

The green scenario would likely set up a long period of gold moving sideways to form a triangle across roughly 1200.