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.

Size Matters

The Key to this Top is the Orange Triangle

The Key to this Top is the Orange Triangle

ES is back inside the top of its navy blue year long megaphone, which is also a rising megaphone (gray bottom).

ES needs a retrace to the light blue megaphone VWAP and rising megaphone bottom to be legal for an upwards breakout from all of these trading formations.

ES could also correct all the way to the navy blue megaphone VWAP or bottom.  And after a retrace to the light blue megaphone VWAP, ES could break out downwards from the navy blue megaphone all the way to year-2011 territory.

The size of the impending correction depends on how big and prolonged a topping pattern ES puts in at the navy blue megaphone top.

The Orange Triangle is Key to the Next Trading Set-Up

ES is trying to form a triangle (orange on chart) across the navy blue megaphone top.  Right now, ES is likely heading up to retest the navy blue megaphone top from inside and redraw the orange triangle top line.

If ES completes the orange triangle and breaks out downwards from it, it’s likely going for the light blue megaphone VWAP at roughly 2150 and would be a favorite (though not guaranteed) to reverse there for a big move up (green scenario).

If ES instead breaks out upwards through the navy blue line again, it’s likely going for the red megaphone top to put a much bigger topping pattern on the navy blue megaphone (light blue scenario).

A big topping pattern here would likely lead to a correction all the way to the navy blue megaphone bottom.

If ES breaks out to the red megaphone bottom before completing the orange triangle, we’re likely in the orange scenario and ES could be stuck in the red megaphone for a long time.  The orange scenario would essentially redraw the rising megaphone on the chart.

Over the weekend I’ll post a super long-term chart that shows all the outs the market has left for itself here.

Mini Gold Plunge Setting Up

Gold is Working on a Top Before a Plunge to the Bottom of the Gray Megaphone

Gold is Working on a Top Before a Plunge to the Bottom of the Gray Megaphone

Gold set up a legal upwards breakout from the pink megaphone inside the red rising megaphone.  The red rising megaphone is a topping pattern across VWAP of the big light blue megaphone that’s been forming since October 2o14.

That meant gold was legal to go stampeding up to a retest of the July 2016 high.  But instead, gold has gotten bogged down forming a topping pattern at the pink megaphone top.

That means gold is likely to reenter the pink megaphone for a plunge to its bottom near the red rising megaphone bottom.

Gold could be working on a topping pattern before a plunge all the way to the light blue megaphone bottom in the 700s (green scenario).  Or, more likely, it could continue to bog down in new megaphones across the 1233-1250 area as it completes a triangle (navy blue) that could break out in either direction (purple scenario).

You have to be careful about shorting here until gold actually breaks down from a complete topping pattern back into the pink megaphone.  Gold can take a long time to complete tops, even small ones.

QQQ Chart All Gnarled Up in Megaphones Again

QQQ Megaphones in Megaphones on 60-Minute Chart

QQQ Megaphones in Megaphones on 60-Minute Chart

QQQ is all gnarled up in megaphones for opex week.  Right now it’s megaphoning across VWAP of the red megaphone on the 60-minute chart.

The blue megaphone at the top of the red megaphone needed a retrace to VWAP and this morning’s little gap up took care of that.  Now the little orange megaphone needs a retrace to at least its VWAP at roughly 131, and it’s a favorite to go for the red and orange megaphone bottoms (green scenario) unless it gets bogged down in a new megaphone across 131 (pink scenario).

The pink scenario would usually mean a triangle is forming between the red megaphone high and low.

There is no fast escape from this muddle.  Any move to a new red megaphone high or low will require a retrace to 131 before a real breakout because of the interior megaphones.