Gold Overnight Surge

Gold Surged to its Megaphone Top While ES Surged to its Megaphone Bottom

Gold Surged to its Megaphone Top While ES Surged to its Megaphone Bottom

Gold is legal for an upward breakout from its pink megaphone with a target of roughly 1375 (a topping pattern up there could take it a bit higher).

But a passionate surge (on a Portuguese bank failure) that stops like a dime on the top of a megaphone is always suspect.

Gold is forming a little megaphone up here across the pink megaphone top.  If it breaks out upwards, it’s going for 1375.  If it breaks out downwards, it’s headed for at least its pink megaphone VWAP and likely 1290 at its pink megaphone bottom before carrying out the trip to 1375.

ES Price Channels Overnight & Implications for Blow-Off Top

ES Broke Out  Downwards from its Navy Blue Short-Term Price Channel Overnight

ES Broke Out Downwards from its Navy Blue Short-Term Price Channel Overnight

ES broke out downwards from its navy blue short-term price channel overnight.  The next target is the bottom of its longer-term price channel (green or purple scenarios on chart).

That channel could be either the bright blue or the orange one on the chart.  It’s a roll-up channel from a less-steep channel and the rules would allow either channel.  However, odds are higher that ES is going for the bottom of the orange channel.  A trip to the orange channel bottom here would also be a retest of a multi-megaphone VWAP area, and make ES legal for an upward breakout from all those megaphones.

If ES gets through that orange channel bottom, it will almost certainly be in the context of forming a new megaphone right shoulder for the potential head and shoulders on the chart.  Megaphone right shoulders almost always lead to upward breakouts from H&S patterns.  They are great for whipsawing small traders, and we’ve been seeing a lot of them.

A stop at one of those channel bottoms would imply a blow-off top that’s gathering speed for the fastest, steepest part of its move.

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SPY and ES May Already Be in Blow-Off Top

ES has Set Up a Steeper Price Channel (Purple) and has no Requirement for a Dip

ES has Set Up a Steeper Price Channel (Purple) and has no Requirement for a Dip

ES has now moved sideways long enough and traveled far enough out of its gray price channel that it appears to have rolled up into a new steeper price channel (purple on chart). You can find the rules for rolling price channels in John Murphy’s Technical Analysis of the Financial Markets.

It could have accomplished the same thing with a dip into the gray channel that failed to make it to the bottom. But now no dip is required.  All existing megaphone requirements have been met, so there’s no requirement for a dip there either.

If the new purple channel doesn’t hold on the Non-Farm Payrolls report, we’ll likely get the dip and possibly a different steeper price channel. But for now my operating assumption is that ES and SPY have already begun the blow-off top I talked about in A Scenario to Pray For.

Since we’ve never had a topping formation complete and break out downwards, you should still be long from the falling wedge breakout and Sornette bubble set-up at the May 20 low. But if you’re not long, wait for the NFP report. If the new purple price channel holds, get long.  If the purple channel fails, wait.  I’ll post a set-up either way.

The fundamentals of this move are that Draghi just set up an incentive for capital flows into the U.S. markets with his move to negative interest rates and the rest.  You need capital flows to get a proper Sornette bubble blow-off top.

Macro Liquidity Indicator Melts Up to New High

Fed Liquidity Flows Moved Up to a New High Last Week

Fed Liquidity Flows Moved Up to a New High Last Week (Chart by Lee Adler)

Lee Adler of the Wall Street Examiner web site has documented in his new macro liquidity chart that Fed liquidity flows rushed to keep up with the stock market last week.

The market doesn’t seem to like sideways moves in that dark blue macro liquidity line, but it looks like the most recent pause is now behind us.