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.

Continue reading

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.