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).

Crash Set-Ups

Neely Crash Call

IWM Megaphone Crash Set-Up

IWM has a Clear Crash Set-Up to the Bottom of its 3-Year+ Red Megaphone

Yesterday I posted that Glenn Neely has put out a public crash warning. He says the only other times he’s had this crash set-up were at the tops in 1987, 2000, 2007 and August 2015.

He said his crash call was based on current wave structure, U.S. margin debt, insider selling, overbought warnings from his Moat Index, a rising interest rate environment and the volume of new accounts being opened at brokerage firms in 2017 around the country.

Neely didn’t mention the collapse in new loans or the recent federal budget surpluses, but I’ve been concerned about those. The crash in new loans suggests a lack of new money formation. And Warren Mosler has written at length about the connection of Bill Clinton’s budget surpluses to the 2000 dotcom crash.

IWM Megaphone Crash Set-Up

And the long-term charts have great technical set-ups for a crash as well.  IWM is working on a top for the pink rising megaphone at the top of its 3-year+ red megaphone.  The red megaphone requires a move to at least VWAP when that top completes.  Neely is calling for a bigger crash, which would mean a move all the way to the red megaphone bottom. That would be the favorite scenario if IWM breaks through the red megaphone top to complete a top on the pink rising megaphone (purple scenario).

Neely is looking for his crash within the next 1-3 months.  IWM needs to work its way across the pink rising megaphone while forming a top, and that’s about how long that process will take.

ES Flat-Bottomed Megaphone Crash Set-Up

ES Flat-Bottomed Megaphone Top

ES has a Flat-Bottomed Megaphone Top on the Long-Term Chart with a Technical Target of 1200ish

ES has a series of rising megaphones in rising megaphones on its long-term chart as well as a huge flat-bottomed megaphone (red), which is also a head and shoulders with a megaphone right shoulder.  A breakout through the neckline at roughly 1800 would target roughly 1200.

Right now ES is working on interior rising megaphones (gray and navy blue) and is likely to complete a head and shoulders inside the bright blue rising megaphone before breakout.  In that case, a breakout from the blue rising megaphone would be a strong set-up to short.

QQQ Crash Set-Up

QQQ Needs a Retrace to its Silver Megaphone VWAP

QQQ Needs a Retrace to its Silver Megaphone VWAP

QQQ not only needs a retrace to VWAP of its silver megaphone, which started forming in June 2005, but also a retrace to its pink and blue rising megaphone bottoms near that VWAP.

It’s also working on the red megaphone and needs a crash to its bottom.

QQQ is working on an extended rising wedge top and is likely to complete a head and shoulders top inside the pink rising megaphone.  A combined breakout from that and the pink rising megaphone would be a strong set-up to short.

Crashes Usually Form Price Channels

A crash usually forms a price channel very close to the start of the crash. So I’ll be posting any price channel melt-down set-ups if we get one.

Better Entries

The heads of H&S tops inside rising megaphones usually form small H&S tops of their own. These are usually a terrific way to get into a crash set-up at the very top. I’ll post them if we get them.

Alternatives to a Crash

Every index has outs on the chart that could avert a crash, though every one requires at least some kind of significant dip soon. If those dips convert into more upward extensions, I’ll post that here.

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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