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.

ES Trading Set-Ups

ES Red Megaphone vs Gray Megaphone vs Blue Falling Megaphone vs Orange Triangle

ES Red Megaphone vs Gray Megaphone vs Blue Falling Megaphone vs Orange Triangle

ES is bogged down in a megaphone (gray) across VWAP (the volume-weighted average price) of the red megaphone.  ES was legal for a downwards breakout from the gray megaphone to roughly 2300, but got stopped by the March 27 low.

Now ES is back at the gray and red megaphone VWAP and a critical decision point.

The Triangle Set-Up

ES could start a new megaphone across the gray and red megaphone VWAPs.  That would almost certainly mean the orange triangle is going to complete (pink and navy scenarios).  It could break out in either direction, but a upwards breakout would be stopped by the red megaphone top, while a downwards breakout would target at least 2150 and could go all the way to 1800 or even year-2011 territory.

The Sornette Melt-Up Set-Up

If ES tries to form a megaphone across the red megaphone VWAP and then breaks out of it upwards without a retrace to VWAP it’s a Sornette melt-up set-up.  This would mean a fast move to the area of the gray and red megaphone tops (purple scenario).

The Falling Megaphone Set-Up

If ES forms a quick head and shoulders top at the red megaphone VWAP and then plunges down to take out March 27 low, it’s confirming the blue falling megaphone (green scenario).

The falling megaphone would usually bottom with an inverse head and shoulders that tags or crosses 2300 before putting in a right shoulder pullback from the falling megaphone top.  When the price breaks out of the blue falling megaphone and inverse H&S, it would be a strong set-up for a move to at least 2390 and almost certainly a new all-time high at the red megaphone top.