Critical Retest and Tell

Fast Stab Lower vs Up Into Fast Top vs Up Into Prolonged Topping

ES is Headed Up to its Red Megaphone VWAP and a Retest of the Inside of its Navy Blue Megaphone Top

ES is Headed Up to its Red Megaphone VWAP and a Retest of the Inside of its Navy Blue Megaphone Top

ES is headed up to its red megaphone VWAP and a retest of the inside of its big navy blue megaphone top.  If it reverses there, it will likely take out the March 27 low.

That kind of fast stab at the navy blue megaphone VWAP that fails to get there would be a perfect set-up for a breakout upwards from the megaphone into a melt-up (light blue scenario).

See the melt-up set-up I posted recently for IWM.

If ES breaks through the navy blue megaphone top it’s still working on a topping pattern before a plunge to at least VWAP and possibly the megaphone bottom and beyond.

The purple scenario represents the kind of fast top that could reverse at VWAP back to the navy blue megaphone top before a huge move down. (I missed a mandatory bounce in that scenario, but you get the idea.)

The green scenario represents the kind of prolonged topping process that would usually lead all the way to a trip to the navy megaphone bottom and then back to its top.

Neely and Corzine

In the IWM post I link to a post about Glenn Neely’s public call for a crash. Yesterday I saw that Jon Corzine, the Democrat bundler who took down MF Global along with hundreds of millions of dollars in customer accounts, was trying to set up a third hedge fund to bet on a Trump crash.

When you start getting lots of people making public calls for crashes, especially for bad reasons, you often get melt-ups instead.

ES Megaphone Welter

ES Red Flat-Topped Megaphone

ES Red Flat-Topped Megaphone vs Blue Megaphone

First, ES has nothing that even resembles a legal top on the daily chart yet.

Second, ES is trapped in a welter of megaphones inside megaphones within its trading range since the March 1 high. No way it escapes this mess easily.

ES has a kinda sorta flat-topped megaphone on the chart (red) and has put in a false breakout through its top at roughly the March 1 high.  That would usually mean a trip down to take out the formation low (green scenario) before a breakout through the top to morph the whole mess into the blue megaphone.

Or ES could still be working on getting straight to the area of the blue megaphone top (purple scenario).

There’s a small rising megaphone on the chart out of the April 17 low that didn’t top properly with a head and shoulders inside the formation.  That would usually mean we see another stab through 2400 even if the flat-topped megaphone is in play (orange scenario).

The proper attitude toward any move within the recent trading range right now is high skepticism.  The only exception would be if a price channel meltdown sets up.  No sign of that yet.


Crash Set-Ups

Neely Crash Call

IWM Megaphone Crash Set-Up

IWM has a Clear Crash Set-Up to the Bottom of its 3-Year+ Red Megaphone

Yesterday I posted that Glenn Neely has put out a public crash warning. He says the only other times he’s had this crash set-up were at the tops in 1987, 2000, 2007 and August 2015.

He said his crash call was based on current wave structure, U.S. margin debt, insider selling, overbought warnings from his Moat Index, a rising interest rate environment and the volume of new accounts being opened at brokerage firms in 2017 around the country.

Neely didn’t mention the collapse in new loans or the recent federal budget surpluses, but I’ve been concerned about those. The crash in new loans suggests a lack of new money formation. And Warren Mosler has written at length about the connection of Bill Clinton’s budget surpluses to the 2000 dotcom crash.

IWM Megaphone Crash Set-Up

And the long-term charts have great technical set-ups for a crash as well.  IWM is working on a top for the pink rising megaphone at the top of its 3-year+ red megaphone.  The red megaphone requires a move to at least VWAP when that top completes.  Neely is calling for a bigger crash, which would mean a move all the way to the red megaphone bottom. That would be the favorite scenario if IWM breaks through the red megaphone top to complete a top on the pink rising megaphone (purple scenario).

Neely is looking for his crash within the next 1-3 months.  IWM needs to work its way across the pink rising megaphone while forming a top, and that’s about how long that process will take.

ES Flat-Bottomed Megaphone Crash Set-Up

ES Flat-Bottomed Megaphone Top

ES has a Flat-Bottomed Megaphone Top on the Long-Term Chart with a Technical Target of 1200ish

ES has a series of rising megaphones in rising megaphones on its long-term chart as well as a huge flat-bottomed megaphone (red), which is also a head and shoulders with a megaphone right shoulder.  A breakout through the neckline at roughly 1800 would target roughly 1200.

Right now ES is working on interior rising megaphones (gray and navy blue) and is likely to complete a head and shoulders inside the bright blue rising megaphone before breakout.  In that case, a breakout from the blue rising megaphone would be a strong set-up to short.

QQQ Crash Set-Up

QQQ Needs a Retrace to its Silver Megaphone VWAP

QQQ Needs a Retrace to its Silver Megaphone VWAP

QQQ not only needs a retrace to VWAP of its silver megaphone, which started forming in June 2005, but also a retrace to its pink and blue rising megaphone bottoms near that VWAP.

It’s also working on the red megaphone and needs a crash to its bottom.

QQQ is working on an extended rising wedge top and is likely to complete a head and shoulders top inside the pink rising megaphone.  A combined breakout from that and the pink rising megaphone would be a strong set-up to short.

Crashes Usually Form Price Channels

A crash usually forms a price channel very close to the start of the crash. So I’ll be posting any price channel melt-down set-ups if we get one.

Better Entries

The heads of H&S tops inside rising megaphones usually form small H&S tops of their own. These are usually a terrific way to get into a crash set-up at the very top. I’ll post them if we get them.

Alternatives to a Crash

Every index has outs on the chart that could avert a crash, though every one requires at least some kind of significant dip soon. If those dips convert into more upward extensions, I’ll post that here.

ES Endless Megaphone

With Last Night's New High, ES Confirmed the Bright Blue Rising Megaphone and Red Megaphone - ES is Now Hopelessly Trapped in Megaphones

With Last Night’s New High, ES Confirmed the Bright Blue Rising Megaphone – ES is Now Hopelessly Trapped in Megaphones

With its little new high last night, ES confirmed the bright blue rising megaphone, which is a favorite to extend.  That means ES is likely to be trapped in the red megaphone for a while–at least long enough to put in another new high after breaking the bottom of the blue rising megaphone.

And because ES failed to complete a triangle before the little push to a new high, it’s likely forming the larger navy blue megaphone as well, and will be trapped inside it and its interior megaphones long after the little red megaphone is left behind.

I limited the green scenario to its biggest moves, but ES is likely to continue spinning interior megaphones inside the navy blue megaphone to complicate the bigger swings up and down.