ES at Top of Megaphone and Top of Rising Megaphone

ES is at the Top of its Navy Blue Topping Megaphone and the Top of a Rising Megaphone Top Within It (Gray)

ES is at the Top of its Navy Blue Topping Megaphone and the Top of a Rising Megaphone Top Within It (Gray)

ES is at the top of its navy blue topping megaphone as well as the top of the gray rising megaphone top within it.  It basically did nothing on the nonfarm payrolls report.

It’s still crawling up the bottom of the price channel Bullethead posted yesterday afternoon (see comments).

It’s forming another even smaller top as I write this. It could be a small megaphone (pink on chart) or it could be another rising megaphone (blue on chart). It’s a hair away from the top of its 6-month megaphone on the daily chart, and it probably wants to get there.  Whatever this top turns out to be will take care of the remaining requirements for the price channel.

The thing that makes me think the market will top sooner rather than later is last week’s double NYMO close over 80. The longest the market has taken to correct after that signal was 13 days.

But you have to wait for a topping pattern to actually complete and break out downwards before you short or even exit longs. For all we know, the NYMO signal will take a new record amount of time. I doubt it, but it’s possible.

NYMO Second Close Over 80 – Same as at Exact Top of H&S Right Shoulder in 2011

NYMO Going Into the Right Shoulder Top of the 2011 H&S

NYMO Put In a Rare Close-Proximity Second Close Over 80 at the Top of the Right Shoulder of the 2011 H&S

NYMO closed at 86.8 on Friday, its second close over 80 last week. (On Tuesday, October 28, NYMO closed at 82.)

Andrew Kassen has posted statistics on past repeat NYMO closes over 80 in close proximity. He shows that this event usually leads to a pullback starting the next trading day. When the pullback hasn’t started the next trading day, the price didn’t move much higher before starting the pullback (a long delay was 13 days). The pullbacks are pretty big (average 11.03%; median 7.43%).

What I’ve been watching is that NYMO made a second close (within four trading days) over 80 at the exact top of the right shoulder of the 2011 head and shoulders.  That was the H&S that lead to the flash crash.

Smaller corrections tend to occur closer to recent lows than the market is at now.

You tend to see NYMO closes over 80 either early in big bull moves (when something like new QE is about to be announced) or after a major short squeeze.  The high NYMO closes this time did not occur close enough to the lows to be considered early in big bull moves.

Last week I posted a number of charts of leading stocks that showed they had reached critical decision points in price channels.  ES was at a critical decision point in a price channel on Friday as well, and it didn’t act the way it should have if the decision was going to be bullish.

I’ll put up charts later this weekend showing the set-ups to short or add to shorts, or at least to exit longs.  I can’t guarantee a big drop, but the risk of one is too high to stay long through this one.

Friday Indicators

The SPY Put-Call Ratio Rose to 2.08 on Friday

The SPY Put-Call Ratio Rose to 2.08 on Friday

The SPY put-call ratio rose to 2.08 on Friday on another significant rise in open interest. That would be high during opex week, but right now it’s roughly at its 20 dma (the chart’s 20 dma is distorted by some days when data didn’t come through accurately). That means it’s probably neutral to modestly bullish in terms of short-term effects.

SPY put volume rose by 35% on Friday. SPY call volume rose by 5%.

The CPCE closed at 0.56, a little below its 50 dma and well below its 20 dma. That’s probably modestly bearish short-term.

The CPCI closed at 0.91, well below its 50- and 20-dma. That’s probably modestly bullish.

The IWM put-call ratio, which had pierced its top Bollinger Band last Wednesday, fell to neutral (1.56) on Thursday and stayed there on Friday.

Perfect conditions for a megaphone.

NYMO is starting to diverge. It should keep diverging if we’re going to see a significant dip in this topping process.

NYMO is Starting to Diverge

NYMO is Starting to Diverge

Same for the advance-decline line.

NYAD Divergence

NYAD Divergence

The dollar’s got a short-term megaphone going that’s probably reached the interior megaphone stage:

DX Short-Term Megaphone

DX Short-Term Megaphone

And TRIN has gone from insanely bullish early Thursday to a close Friday just slightly on the bearish side of neutral.

All as we head into a three-day weekend.

Perfect weather for a megaphone.

After NYMO Signal Cancellation

Since the NYMO -100 signal got cancelled by a stockcharts.com revision, I don’t want to be long. There’s no longer a promise of a lower low, and there are no longer great odds of a good-sized rally.

There are repeated bottoming wedge formations on the E-mini with breakouts that failed from lack of follow-through buying. SPY’s falling wedge has been characterized by such weak buying that I had to measure to confirm it was a wedge.

Have to wait for a better set-up, and odds are good it will be to short.