XLE Megaphones with Potential Melt-Up Set-Up

XLE has a Potential Sornette Melt-Up Set-Up on its 60-Minute Chart

XLE has a Potential Sornette Melt-Up Set-Up on its 60-Minute Chart

XLE has formed a beautiful megaphone inside a megaphone on its 60-minute chart.  Even better, XLE has formed a potential Sornette melt-up launch pattern across VWAP of the red megaphone.

An upwards breakout through the navy blue megaphone VWAP, typically with a double bobble as the orange megaphone fails to retrace to VWAP, would target the red and blue megaphone tops.  The move would usually be fast (green scenario).

The light blue scenario represents a series of megaphones inside megaphones across the navy megaphone VWAP.  We’d usually see this is a triangle right shoulder is forming on the potential inverse head and shoulders bottom on the daily chart (see below).

The purple scenario represents a top before a collapse back to the 2016 (see below).

 

XLE Inverse H&S Bottom with Right  Shoulder Triangle vs Neely Set-Up

XLE Inverse H&S Bottom with Right Shoulder Triangle vs Neely Set-Up

XLE formed a price channel on its move down from the June 2014 high to the January 2016 low.  That kind of move is a Neely set-up for a partial retrace then retest of the low before a melt-up back to the all-time high (purple scenario).

The green scenario on the daily chart is a triangle right shoulder on the inverse H&S before a breakout to retest the all-time high.  It’s possible but unlike (because of the megaphones on the 60-minute chart) that XLE will break out of that inverse H&S without a triangle right shoulder.

The Neely set-up is the favorite longer-term.

Big Oil Set-Up Coming Up

A Break of the August 2016 Low is a Set-Up to Get Long When It Recrosses that Level Heading Up

A Break of the August 2016 Low is a Set-Up to Get Long When It Recrosses that Level Heading Up

Oil broke its trend line up from the August 2016 low today. That means a set-up to get long for a move to about 80 is getting closer.

Oil needs to work its way to the orange megaphone bottom, meaning it needs to take out its August 2016 low by a bit to retest its January 2016 low.

When it then recrosses the level of the August 2016 low heading up, it’s a set-up to get long not only to the orange megaphone top but likely, after a pullback to VWAP at 50, for the breakout to roughly 80.

Oil is working its way to the orange megaphone bottom within a series of interior megaphones.  So the route down could be complicated.

It could drop straight to the orange megaphone bottom (pink scenario), or it could put in a formal breakout set-up from the blue megaphone to get there (green scenario), or it could megaphone down to there within the gray megaphone (purple scenario).

CLMT – Great Long-Term Set-Up with a Great Short-Term Launch

Neely’s B-Failure Flat Set-Up

A Crash Followed by a Partial Retrace Followed by a Return to the Crash Low is a Set-Up for a Return to the All-Time High

A Crash Followed by a Partial Retrace Followed by a Return to the Crash Low is a Set-Up for a Return to the All-Time High

Glenn Neely’s book, Mastering Elliot Wave (Version 2), provides a useful collection of trading set-ups and data. One particular set-up in Neely’s book that has paid off time and again in recent years is a formation he calls a B-Failure Flat.

You tend to see these formations after crash waves like QQQ’s crash out of the dot-com bubble and the big 2008 plunge in oil. If the crash wave takes a particular form, the reaction wave (or “B wave”) that follows tends to retrace roughly 60% of the crash.  It doesn’t have to be 60%.  It just has to be a significant retrace that doesn’t make it back to the high.

The B wave reaction tops with range trading, typically forming a head and shoulders or megaphone top or an extended triangle, then the price collapses (in a “C wave”) back to the crash wave low.

CLMT (Calumet Specialty Products) is about to complete this pattern.  After it completes a bottom, its next target is the all-time high.

Here’s the set-up on QQQ:

Neely B-Failure Flat Set-Up on QQQ

Neely B-Failure Flat Set-Up on QQQ

Here’s the set-up on oil:

Same Set-Up on Oil

Same Set-Up on Oil

It’s a set-up about a price that is taking huge swings around a correct price roughly in the middle.

A Great Short-Term Entry is Setting Up for CLMT’s Big Move Up

CLMT Opted to Start a Bottoming Pattern in the Critical Decision Wave of its Navy Price Channel

CLMT Opted to Start a Bottoming Pattern in the Critical Decision Wave of its Navy Price Channel

CLMT appears to be putting in an island bottom with a neckline at roughly 6 (see top chart).  Obviously a gap up from an island bottom would be a great set-up to get long.

But for more nimble traders, a beautiful price channel bottoming set-up can get you in closer to the bottom.

Specifically, on the move down out of the early 2017 high, CLMT confirmed a price channel (navy blue in chart above).  And in the channel’s critical decision wave (meaning the new channel low after two alternating touches on both the top and bottom), CLMT took a swing back up to the channel top rather than breaking out the bottom.

That channel provided a beautiful melt-down set-up to zero if CLMT was heading into bankruptcy.  Instead CLMT started a megaphone bottom (pink in chart).  A breakout now through the channel top would target roughly the pink megaphone top at the 200 dma.  A final retest of the 40 dma would be the retrace to the pink megaphone VWAP that would set up a breakout up to the island bottom neckline at 6.

Typically there would be a bit of a consolidation there before the gap up into the big move up.

CLMT would typically bog down at roughly the 30 level on its big move up–usually to attempt a topping pattern like a head and shoulders at the red megaphone VWAP.  The topping pattern would usually end up breaking out upwards to set up a big rising megaphone melt-up back to the all-time high.

We could also see a big Sornette melt-up set-up across 30 before blast-off.

Hat-tip to @jasteindorf1 for the stock. He has personal expertise in this company and product. The view of the stock provided, however, is strictly based on chart trading set-ups, not fundamentals.  Do your own due diligence.

You could long on the price channel breakout and set your stop a little below the pink megaphone VWAP or 40 dma after breaking through.

Oil Triangle vs Price Channel

If Oil Puts in a New High in its Potential Price Channel (Red) Before Breaking its Bottom, It's a Potential Melt-Up Set-Up

If Oil Puts in a New High in its Potential Price Channel (Red) Before Breaking the Channel Bottom, It’s a Potential Melt-Up Set-Up

Oil has bounced off the bottom of a potential price channel (red on chart). If it should make a new channel high before breaking the channel bottom, it will be in its critical decision wave for setting up a melt-up vs. forming a channel top.

A melt-up set-up (purple on chart) would target 75.

If oil kills the price channel set-up or elects to form a channel top on a new high instead of breaking out into a melt-up, it’s forming either a triangle (navy blue on chart above) or a megaphone.

Here are the scenarios on the 60-minute chart:

Oil Scenarios on the 60-Minute Chart

Oil Scenarios on the 60-Minute Chart

The green scenario is the most likely at the moment.