DAX Price Channel & Rising Megaphone

DAX Looks Like It's Forming a Top on the Red Price Channel to Retrace the Pink Rising Megaphone, Then Should Continue Higher

DAX Looks Like It’s Forming a Top on the Red Price Channel to Retrace the Pink Rising Megaphone, Then Should Continue Higher

DAX has formed a price channel (red) and rising megaphone (pink) on its move out of the 2009 low.

Between the 2009 low and mid-2012, DAX also put a triangle right shoulder on a big inverse H&S on the weekly and monthly charts.

DAX has failed to put in a melt-up set-up on the red price channel. It also failed to complete a head and shoulders top inside the pink rising megaphone.

That means its likely to consolidate here as it retraces the pink rising megaphone and likely retests the inverse H&S neckline or even (less likely) the gray megaphone VWAP.

DAX is a favorite to continue up out of this consolidation substantially higher. The green scenario (again, the favorite) would put both a Sornette melt-up set-up on the chart and a larger rising megaphone, suggesting roughly an 8000-point melt-up from the high before the retest of the inverse H&S neckline.

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.

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.

Bitcoin Sornette Bubble Set-Up

Bitcoin has had Two Bubble Melt-Ups - That Usually Means a Third

Bitcoin has had Two Bubble Melt-Ups – That Usually Means a Third

Bitcoin has had two vertical melt-ups, one in 2013 and one in 2017. Didier Sornette has shown that usually means there will be a third after a retrace into the area of the first, with the third being the big mama of the three.

Another way to look at Bitcoin is as a big four-year+ megaphone that’s likely to break out upwards after a retrace to VWAP. It’s hard to see on the chart, but the 2013 top took the form of a megaphone with a VWAP around 900. Bitcoin needs a retrace to that VWAP to be legal for a breakout upwards with a target near 6000.

Bitcoin could also bog down in a prolonged sideways move across VWAP.  But a huge melt-up is more likely, with this move the biggest and fastest of the three.