IWM is Poking at Important Lines

The Pink Rising Megaphone Means IWM Needs to Get Cracking

IWM is Picking at Its Red Megaphone Top and the Bottom of its Big Light Blue Rising Megaphone

IWM is Picking at Its Red Megaphone Top and the Bottom of its Big Light Blue Rising Megaphone

IWM is still trying to work its way back to the bottom of the pink rising megaphone within its multi-year red megaphone and navy blue rising megaphone.

It’s picking at its red megaphone top and the bottom of its old light-blue megaphone as it works on what’s like the head of a head and shoulders top for the pink rising megaphone.

As always for a rising megaphone top, timing is important for the pink rising megaphone.  Rising megaphones provide great short set-ups when they top with a head and shoulders that breaks out at the same time as the price breaks out through the rising megaphone bottom.

That means IWM needs to get cracking on a trip to the pink rising megaphone bottom, put in a right shoulder bounce, and break out. Otherwise it’s either going higher (light blue scenario) or it’s going to drag out this top some other way.

The H&S Scenario vs the Megaphone Crash Scenario

After IWM finally completes a top for the pink rising megaphone, it’s going for at least the red megaphone VWAP (green scenario) and possibly its bottom (purple scenario).

A trip to the red megaphone bottom would set up a melt-up to the megaphone top.  A reversal at the red megaphone VWAP would set up at least a move into the head of a head and shoulders top for the navy blue rising megaphone, and possibly a genuine breakout from the red megaphone in an extension of the navy blue rising megaphone.

The Sornette Bubble Blow-Off Top Set-Up

An IWM stab at the red megaphone VWAP that doesn’t get all the way to VWAP would start my adrenaline pumping.  A hard reversal above VWAP and a second attempt at selling near the red megaphone top that ends up breaking out upwards would confirm a monster Sornette melt-up set-up on the daily, weekly and monthly charts (orange scenario).

We’d be looking at a target near 200ish and IWM could go much higher.  The move would be very fast.

You could even make a case that IWM has just put in in the second bobble of a Sornette melt-up set-up and is breaking out of it right now.  A Sornette melt-up set-up is essentially a megaphone that breaks out without a retrace to VWAP.  Instead it puts in two smaller pullbacks (bobbles) as the megaphone breaks out.

That’s less likely because the first pullback was so low (the pullback into the October 2016 low) and because of the extended bog-down at the red megaphone top, which began last December.  Usually the second bobble of a Sornette melt-up set-up is faster than the first.  The idea is that the move should be gaining speed, not losing it.

The Difference Timing Makes

The Fast Top Scenario at Friday's Open - Didn't Play Out Because QQQ Bogged Down

The Fast Top Scenario at Friday’s Open – Didn’t Play Out Because QQQ Bogged Down

The chart above is the fast top scenario from Friday’s open. If QQQ hadn’t bogged down at 144 for the last four hours of the trading day, QQQ would likely be crashing now.

QQQ's Stall on Friday Means It is Unable to Complete a H&S Top Here Inside the Blue Rising Megaphone

QQQ’s Stall on Friday Means It is Unable to Complete a H&S Top Here Inside the Blue Rising Megaphone

Instead, QQQ’s stall on Friday means it can’t complete a head and shoulders top here inside the blue rising megaphone.  It could still complete a H&S top across the blue rising megaphone bottom (pink scenario), but that scenario is so rare I used to think it didn’t exist.

Friday’s stall means QQQ is a strong favorite to put in a higher high outside the blue rising megaphone if it breaks out of the megaphone here (purple scenario).  Otherwise, QQQ should continue melting up the blue rising megaphone, typically forming a rising wedge or rising megaphone extension, until it forms a H&S somewhere near the top of the red megaphone.

But if anything can trigger the rare pink scenario, it would be something like a surprise FOMC announcement, so you can’t get too smug about long positions.

Perfect Set-Up for the Fast QQQ Top

QQQ Head and Shoulders Top

Right This Second the Green Fast Top Scenario is the Favorite

QQQ just filled Wednesday’s gap up and bounced in a way perfect for setting up a head and shoulders top on the blue rising megaphone top for the silver rising megaphone.

If QQQ can complete the green scenario’s H&S top inside the blue rising megaphone and break out from both the H&S and rising megaphone at the same time, it would be a perfect set-up for a fast crash to the bottom of the red megaphone high odds of a retrace to VWAP and then continued crash down out of the larger H&S on the chart.

We’re at the tail end of the timing band for a Sornette bubble crash call of at least 20%.   QQQ has a mandatory megaphone VWAP retrace target of roughly 100, with the megaphone bottom at 70 if QQQ manages a genuine breakout through VWAP.

A fast stab at 100 that started getting bought hard before reaching 100 would be a fantastic set-up for a gigantic move up.  Exact long-term targets would depend on exactly how and where QQQ reversed.  I’ll do a long-term chart after we see how QQQ tops for this dip.

But the green topping scenario is not a lock.  There are more ways for QQQ to extend this move than I can show on the chart.

QQQ Takes Out June 9th High but Within a Megaphone

QQQ has Taken Out the June 9 High and Put a New High in its Red Megaphone Right Shoulder

QQQ has Taken Out the June 9 High and Put a New High in its Red Megaphone Right Shoulder

QQQ has taken out the high of the big red June 9th candle. That kills a Neely correction set-up.

There’s still a Sornette crash set-up, but even that’s dragged out a bit long.  A Sornette crash call leads 60% of the time to a crash of at least 20% that reaches the target within two weeks of the call.  We’re right around the two week mark now.

QQQ could still put in a crash to at least 105ish very quickly by putting in the green scenario, which is a megaphone right shoulder on a potential head and shoulders top.  Usually a megaphone right shoulder leads to a squeaker new high for the formation.  Then a larger H&S completes and breaks out downwards.

The 40% of the time that a Sornette crash call fails, you’ll still usually see a decent-sized correction, often within a megaphone consolidation.  In that case, we could see the purple scenario, but the blue scenario becomes the favorite.

The blue scenario is a stab at the 105 retrace target within the red megaphone.  QQQ fails to get all the way to the target and then breaks out upwards from the red megaphone after an aborted attempt to retrace to its VWAP.  This set-up would likely lead to a huge melt-up.  Think 70ish points on QQQ from the high before the dip, 600ish points on ES.