XLK Sornette Melt-Up Going Vertical

XLK is in a Megaphone 5th Wave Melt-Up and Sornette Bubble Melt-Up

XLK is in a Megaphone 5th Wave Melt-Up and Sornette Bubble Melt-Up

XLK is in a perfect Sornette bubble melt-up going vertical now.  It’s also in a megaphone 5th wave melt-up.  These are the kinds of melt-ups where right at the top everyone feels like it’s going to last forever.

XLK is just reaching the top of the red megaphone.  This move is not going to turn with an exact touch on the top.  It will break through that top and put in a topping pattern before a reversal to at least the red megaphone VWAP and almost certainly at least a retest of the August 2015 low.

I already know about earnings.  Nobody needs to explain to me why XLK can’t possibly crash.  I’m just showing you the chart.  XLK could easily get going on another bigger, faster, better melt-up after the pullback.

And again, don’t try to short at the megaphone top.  XLK could climb that top for months or put a big topping pattern up there that could murder your bankroll. Often we’d see a tall, thin rising wedge once the price is moving straight up, and a break-out from that would tend to be a great short.

IWM Megaphone Update

IWM Megaphone

IWM is Still Neatly Turning at the Top of its Red Megaphone & Needs a Retrace to at Least VWAP at 113

IWM is getting closer to the bottom or right side of its pink rising megaphone and that means we’re likely closing in on the dip or correction we’ve been waiting for.

IWM could put in a swoosh to its little light blue megaphone bottom any time, then put in a triangle right shoulder for a head and shoulders top before a breakout from the pink rising megaphone to at least its bottom near the red megaphone VWAP.

IWM has been turning neatly at its big red megaphone top.  It could still break through that top in the purple scenario, which would greatly raise the odds of a trip to the red megaphone bottom.

The green scenario, which is a Sornette bubble set-up, is a set-up for a melt-up to close to 200.  The light blue scenario, a Sornette set-up failure, would set up a crash to roughly 60.  The purple and orange scenarios could keep IWM in the red megaphone for a very long time.

Neely is looking for a crash or blow-off top before a crash.

Megaphone and Neely

When Different Systems Call for the Same Thing

ES is Working on the Blue and Red Megaphones

ES is Working on the Blue and Red Megaphones

Neely put out another public call over the weekend for a major drop in the S&P. He called for an initial violent decline to below 2200 to “jolt” the markets and establish the pre-jolt high as the top for the next few years. He says the bear market will end with a retest of 1000 three to five years from now.

It just so happens that the violent decline to below 2200 scenario is virtually required by my own charts.  ES is working on the blue and red megaphones on the daily chart above.  It is redrawing the red megaphone top, which means it will need a trip to the red megaphone bottom after it completes the move out of the March 27 low.

ES also requires a retest of the navy blue megaphone VWAP at roughly 2150.  And a fast move to 2150 would complete both the mandatory retrace of the orange rising megaphone and mandatory retest of the navy blue rising megaphone bottom.

The Critical Decision Point

My trading system would then require a retest of the red megaphone VWAP at 2350.  From there, my system could put ES into a drop to some megaphone bottoms at 1800 and beyond or it could send ES off upwards into a blowoff top to 3000.

Neely expects the drop.

Neely put out some charts weeks and months ago that anticipated a top at right about where ES is now.  My megaphone set-ups suggest a top a bit higher, and taking a bit longer to complete.  But since ES is establishing a brand new top on the red megaphone, it could turn any time.

ES is retesting the top of some very long-term trading formations today (the navy blue line I keep writing about).  If it gets through 2400 today, it’s recrossing that line.

The bright blue megaphone VWAP is at 2385.

Glenn Neely runs a fund that trades his method and offers trading advice at Neowave.com and is author of The Neely Method, a book from which I’ve learned a number of valuable trading set-ups.

Oil Update

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

Oil Inverse Head and Shoulders with Megaphone Right Shoulder

Oil continues to work on the right shoulder of its inverse head and shoulders bottom (blue neckline).

Oil is working on a megaphone or triangle right shoulder on the formation.  Because the last trip to the bottom of the red megaphone reversed so close to the previous red megaphone low, oil is likely to reverse on this bounce to the megaphone VWAP to put in a lower red megaphone low or even a double bottom for the inverse H&S (green scenario).

If instead oil starts a new megaphone across VWAP, it’s likely forming a triangle right shoulder (purple or orange scenario).

Oil could also put in a Sornette set-up at VWAP for a fast swing back up to the blue neckline before a return to VWAP (not drawn).

Oil could also morph the inverse H&S into a triangle that breaks out downwards into a final low for the correction off the 2012 highs, but that is less likely.

Contango vs Backwardation

Basically, oil is in contango (see post on contango and backwardation), and its happy place right now is 50ish. Goldman is warning that if oil can’t move into backwardation double quick, it’s likely to have a hard move down (green scenario).