ES Big Flat-Bottomed Megaphone on the Weekly Chart

Red Flat-Bottomed Megaphone

ES Flat-Bottomed Megaphone on the Weekly Chart

ES Flat-Bottomed Megaphone on the Weekly Chart

The technical target for the ES upwards breakout from its big head and shoulders is roughly 2400. But ES also has a giant flat-bottomed megaphone (red) on the weekly chart, and ES could go all the way for its top on this move.

Orange Rising Megaphone

However, ES has formed a rising megaphone (orange) on the way up out of its early 2016 low, and it has just reached the top of that formation.  Moves like this don’t end on an exact touch on a formation top, so ES will either pull back here and put in a new high inside the rising megaphone, or it will break through the top to put in a topping pattern on its top.

Mandatory retrace to 2150

ES has a mandatory retrace requirement at 2150 (from megaphones discussed in earlier posts), which happens to be at the orange rising megaphone bottom if ES gets there fairly soon.  If ES breaks down through 2150, it will also be breaking out of the orange rising megaphone, setting up a trip to at least its bottom but more likely the bottom of the red flat-bottomed megaphone.

Big Moves Ahead

If ES reverses on the dip to 2150 and puts in a new high, it will be redrawing the orange rising megaphone for a huge move.  Any breakout to another new high before a small breakout through the red megaphone bottom would be an upwards breakout from the red flat-bottomed megaphone with a target roughly 600 points higher.

If ES instead makes it to the bottom of the red flat-bottomed megaphone, it can either break out into a crash with a technical target 600 points lower, or it can put in a fake breakout that reenters the flat-topped megaphone with a target of a small new high in the formation.

Other Formations Confirm

I’ve been posting for months on other trading formations (megaphones and rising megaphones) on the ES long-term charts. Those trading formations confirm the set-ups and targets from the trading formations discussed above.

GDXJ Inverse H&S

GDXJ Inverse H&S (Red Neckline)

GDXJ Inverse H&S (Red Neckline)

GDXJ has an inverse H&S bottom on its long-term charts (red neckline).  It’s also formed a megaphone off the bottom (blue) and just put in the retrace to VWAP that makes the megaphone legal for an upwards breakout.

That means GDXJ could head straight up from here for a breakout from the inverse H&S, with a target of roughly 100 (green scenario).

The purple scenario represents a triangle right shoulder on GDXJ’s inverse H&S, with follow-through on a larger inverse H&S set-up.

The orange scenario represents a breakdown through the blue megaphone VWAP for a new low near zero.  The odds of this are extremely small.

The pink scenario represents a false breakout through the red inverse H&S neckline to put a megaphone right shoulder on the formation.  If you see GDXJ reenter the inverse H&S after a small breakout, get ready to buy the dip just below 25.

The longer GDXJ spends down here forming a right shoulder, the more likely it is to break out quickly through 100 when it finally heads up.

QQQ Maxes Out Price Channel Melt-Up

QQQ is Maxing Out the Price Channel Melt-Up Set-Up Inside Its Blue Rising Wedge

QQQ is Maxing Out the Price Channel Melt-Up Set-Up Inside Its Blue Rising Wedge

QQQ confirmed a price channel melt-up set-up at its last trip to the bottom of the blue rising wedge on the daily chart.  Now it’s maxed out its price channel roll-ups and is heading up into the start of a top.

QQQ can start the top on this melt-up anywhere inside the rising wedge or a little bit through its top.  The only thing it can’t do is complete this rising wedge with an exact tag of the rising wedge top.

The top on this melt-up within the rising wedge can end with a megaphone, head and shoulders, triangle top or smaller rising wedge top.  QQQ could even tag its blue rising wedge top, return to the rising wedge bottom, and then extend the blue rising wedge with two more higher highs between tags of the wedge bottom.

Once ES completes the blue rising wedge, it must retrace to at least the level of the lowest touch on its bottom.  But it could correct a lot further.

When QQQ Retraces to Its Blue Rising Wedge Bottom, It's Also Retracing To the VWAPs of Two Megaphones & Could Collapse to Their Bottoms

When QQQ Retraces to Its Blue Rising Wedge Bottom, It’s Also Retracing To the VWAPs of Two Megaphones (Gray & Navy) & Could Collapse to Their Bottoms

When QQQ retraces to its blue rising wedge bottom it will also be putting in a mandatory retrace to the VWAPs (volume-weighted average prices) of two long-term megaphones (gray and navy on the chart above). If QQQ breaks out through those VWAPs, the next target would be the megaphone bottoms.

Ultimately QQQ must retrace to the bottoms of the blue and silver rising megaphones on the long-term chart above (the blue formation’s bottom is at 42).  But QQQ could extend this move up (purple and rose scenarios) before completing that retrace.

ES Critical Decision Point

ES has Reached the Top of its Blue Rising Megaphone and Rose Megaphone - Continuing Up From Here would Imply a Bigger Drop After

ES has Reached the Top of its Blue Rising Megaphone and Rose Megaphone – Continuing Up From Here would Imply a Bigger Drop After

ES has reached the top of its blue rising megaphone and rose megaphone. The rose megaphone requires a pullback to its VWAP (volume-weighted average price) at 2150 to be legal for a breakout upwards.

The orange rising megaphone also requires a pullback after completion to 2150.  The blue rising megaphone eventually requires a pullback to 1960.

This is one of those spots where ES either has to stop for a quick immediate dip to 2150 (purple scenario) that would imply another new high after the dip or it’s going to break through those formation tops and put in a top that requires a much bigger pullback (green scenario).

Yen Critical Decision Point

Yen Inverse H&S Bottom (Red Neckline) vs Blue Falling Megaphone

Yen Inverse H&S Bottom (Red Neckline) vs Blue Falling Megaphone

Yen futures have completed an inverse head and shoulders bottom with a megaphone right shoulder (silver) on the drop out of last August’s high.

The yen has just retraced to VWAP (the volume-weighted average price) of that megaphone right shoulder and is now legal for a breakout upwards from the inverse H&S (purple scenario).

But if the yen can break down through VWAP for a trip to the megaphone bottom, if will put in a new low for the move out of the August high and confirm the blue falling megaphone.  That would be nice to see because it would usually provide a strong set-up for a melt-up to the formation top (green scenario).

The yen could also bog down forming megaphones inside megaphones across the silver megaphone VWAP (pink scenario).  This would usually mean a continuation triangle before a move to a new low to complete a wider falling megaphone.

US Dollar Update

DX is at the VWAP of its Long-Term Megaphone (Red)

DX is at the VWAP of its Long-Term Megaphone (Red)

The dollar is hung up at the VWAP (volume-weighted average price) of a very long-term megaphone that began forming in the late 1980s (red on chart).  It’s also paused just above the breakout point from a falling wedge top connecting the 1985 and 2002 dollar highs.

DX Megaphone (Purple) vs Triangle (Green) Scenario

DX Megaphone (Purple) vs Triangle (Green) Scenario

DX got to its recent high within the red rising megaphone on the second chart.  That high pierced the formation top before reentering and would usually make a new high within the formation before breaking out of it.

Then DX must return to at least the base of the rising megaphone at roughly 93.

It could get there by returning to the blue megaphone VWAP at roughly 95 and starting a new megaphone there (green scenario).  The green scenario could produce a series of new megaphones inside megaphones across 95 to form a big continuation triangle before the dollar continues up to the top of its long-term red megaphone.

But it’s more likely that the dollar will continue through 95 to the bottom of its blue megaphone to form the larger orange megaphone.

Moment of Truth for the Ten-Year T-Note

ZN has been Working on a Bottom Since December 1 - Here's Where We Find Out Whether It's an Inverse H&S or Megaphone Bottom

ZN has been Working on a Bottom Since December 1 – Here’s Where We Find Out Whether It’s an Inverse H&S or Megaphone Bottom

The 10-year t-note has been working on a megaphone right shoulder for a potential inverse head and shoulders that began forming December 1. Now it is back at the inverse H&S neckline.

A quick pullback here to the right shoulder VWAP (volume-weighted average price) at roughly 124-23 would set up a breakout from the inverse H&S with a target of roughly 129 (green scenario).

A break through the neckline without a pullback first (purple scenario) would usually stall out quickly and the 10-year would form a topping formation at the neckline.  That would typically lead to a plunge to the right shoulder megaphone bottom for a retest of the low and possibly a new low.

That would be a plunge to buy, because the t-note would just have reached the low point of a larger megaphone bottom en route to a higher target.

Gold is Approaching its 1250 Critical Decision Point

Gold is Approaching its Critical Decision Point at the Purple Megaphone VWAP

Gold is Approaching its Critical Decision Point at the Purple Megaphone VWAP

Gold is approaching its purple megaphone VWAP (volume-weighted average price) and critical decision point at 1250.

Gold had a mandatory retrace requirement to 1250 before it could legally break out downwards from the purple megaphone and through the orange megaphone VWAP at roughly 1140 for a trip to the orange megaphone bottom in the 700s.  So gold could reverse at 1250 for that plunge.

Gold is Approaching 1250 within the Red Rising Megaphone on the 60-Minute Chart

Gold is Approaching 1250 within the Red Rising Megaphone on the 60-Minute Chart

Gold is approaching 1250 within the red rising megaphone on the 60-minute chart. This rising megaphone would typically complete with a head and shoulders top inside the formation that breaks out at the same time as the formation for a plunge to its bottom at 1200.

From 1200, gold could go blasting off past the July 2016 high for a breakout from a big inverse head and shoulders on the weekly charts.  That’s unlikely with a chart like this.

More likely, gold will either enter into the green megaphone-in-megaphone scenario on the top chart to complete a triangle (red on top chart) that could break out in either direction, or gold will complete the navy blue megaphone top on the 60-minute chart and break out downwards into the 700s.

The green triangle scenario is the strong favorite, but remember that Neely has a big correction set-up on his SPX charts for February or March that could mean an atypical move for gold too.