SPY Price Channel Likely Top

SPY's Pink Price Channel Set Up in 2016 but Failed to Break Out When It was Supposed to in December

SPY’s Pink Price Channel Set Up in 2016 but Failed to Break Out When It was Supposed to in December

SPY confirmed the pink price channel on November 21, 2016 when it broke out past the previous channel high on August 23, 2016.  SPY was then in its critical decision wave for the channel.  That’s where the price either sets up a breakout into a melt-up or starts a top.

What SPY did was tag the channel top, pull back a little, and then fail to break out decisively (a breakout within a melt-up set-up would have looked like the purple scenario).

You often see this when the channel is forming a rising wedge (green scenario) or rising megaphone (orange scenario) top across the price channel top.  The rising megaphone scenario is the favorite.

Look Where QQQ Paused

QQQ has Broken Out of Its Red Topping Megaphone and is Paused at the Navy Megaphone VWAP

QQQ has Broken Out of Its Red Topping Megaphone and is Paused at the Navy Megaphone VWAP

QQQ has broken out of a topping megaphone (red) on the top of a larger megaphone (navy blue) and is now paused at the navy blue megaphone VWAP.

Because QQQ broke through the navy blue megaphone top to form a topping pattern, and because there’s a Neely set-up for a deep retrace of the move out of the August 2015 crash low, QQQ should go for the navy blue megaphone bottom.

QQQ should Bounce at Roughly the Red Rising Wedge Bottom to Retest the Navy Blue Megaphone VWAP Before a Breakout Downwards to the Red Wedge Bottom

QQQ should Bounce at Roughly the Red Rising Wedge Bottom to Retest the Navy Blue Megaphone VWAP Before a Breakout Downwards to the Red Wedge Bottom

QQQ should bounce off the bottom of the red rising wedge and navy blue megaphone bottom to retest the navy blue megaphone VWAP before continuing down to the critical decision point at the red wedge bottom.

If QQQ has a genuine breakdown through 100, next target is roughly 70.

QQQ Neely Signal

Biggest One-Day Slide Since August 2015 Suggests Deep Retrace of Move

On Friday QQQ Put In Its Biggest 1-Day Slide Since August 24, 2015 - That's a Neely Signal

On Friday QQQ Put In Its Biggest 1-Day Slide Since August 24, 2015 – That’s a Neely Signal

On Friday QQQ slid 5.79 points from the day’s high to low. That is the biggest one-day slide since August 24, 2015 (the capitulation move of the China bubble crash). That is a Neely signal that the move out of the August 24, 2015 low has just ended.

That suggests QQQ has started a deep retrace of that move. However, unless QQQ crashes more than 9.50 points on Monday, it suggests QQQ has higher to go after a partial retrace of that move.

QQQ reentered its pink rising wedge Friday and ended the day with a retest of its top.  It’s likely to continue down to the rising wedge bottom and beyond to at least the orange megaphone VWAP and the bottom of the silver rising megaphone.

That will be a critical decision point.

Critical Decision Point will be at 105-106ish

QQQ could reverse hard at the silver rising megaphone bottom for a breakout upwards from the orange and light blue megaphones and the silver rising megaphone into a truly magnificent move up with a target of roughly 200 (green scenario).

Or QQQ could start a megaphone there (purple scenario) that breaks the price out of the silver rising megaphone to set up a new rising megaphone (red on chart).  That would imply a new all-time high within the light blue megaphone and red rising megaphone, but not a move to 200.  Instead, QQQ would likely be putting in a double wave up within the light blue megaphone and setting up a swing to its bottom.

The Larger Crash Scenario

If QQQ is going to put in a candle larger than 9.50 points on the correction to 105-106ish, it will likely do so as part of a price channel crash set-up that takes QQQ straight to the light blue megaphone bottom before another swing to its top.

The Bots

Studies show that high-frequency trading bots tend to suppress volatility. I don’t have enough data to know how this affects things like the Neely signal.

So even though this signal back tested well for decades, keep an open mind about the possibility of a megaphone starting here rather than an immediate correction.

The Price Action to Watch For

However, the price action usually won’t lie.  If the market’s heading down from here to 105-106ish or beyond, the move would usually start as a price channel.  In the critical decision wave, we’d usually see either a conventional breakout into a series of melt-down channels, or we’d see a large falling megaphone bottom start.

Large falling megaphone bottoms tend to break out of a price channel like a conventional melt-down set-up, then retrace all the way to the price channel top, then break down out of the channel past the first channel breakout.

Either could reverse at 105-106ish, but a falling megaphone would be a tell that a reversal there is a strong favorite.

Plug for a Friend’s Fiction Site

My blackjack team partner, Arnold Snyder, publishes a fiction website at Write-aholic.com. The site has reviews of novels and Arnold’s own fiction.  If you like fiction, I think you’ll like the site.

He wrote one of my favorite short stories, Finding God on LSD (A Short Story About Schizophrenia) and is now publishing online a series of short novels he calls Smut4Nerds.  Hilarious.

He also wrote Risk of Ruin, which I happen to like a lot. It’s a novel about an antisocial profession gambler/biker who ignores the odds and takes up with a stripper who believes she’s God.

ES Trying to Top Update

ES would Usually Make You Redraw the Red Megaphone Top Twice

ES is Searching for the Red Megaphone Top and would Usually Make You Redraw It Twice

ES is recrossing the blue megaphone top, trying to draw a top before a move back to its bottom and ultimately the red megaphone bottom.

The top could take a lot longer and be a lot bigger than I’ve drawn and may look a lot different from what I’ve drawn.  But in general, as that top forms, it would make you redraw the red megaphone top several times before the topping pattern breaks out downwards.