Yen Critical Decision Point

Yen Inverse H&S Bottom (Red Neckline) vs Blue Falling Megaphone

Yen Inverse H&S Bottom (Red Neckline) vs Blue Falling Megaphone

Yen futures have completed an inverse head and shoulders bottom with a megaphone right shoulder (silver) on the drop out of last August’s high.

The yen has just retraced to VWAP (the volume-weighted average price) of that megaphone right shoulder and is now legal for a breakout upwards from the inverse H&S (purple scenario).

But if the yen can break down through VWAP for a trip to the megaphone bottom, if will put in a new low for the move out of the August high and confirm the blue falling megaphone.  That would be nice to see because it would usually provide a strong set-up for a melt-up to the formation top (green scenario).

The yen could also bog down forming megaphones inside megaphones across the silver megaphone VWAP (pink scenario).  This would usually mean a continuation triangle before a move to a new low to complete a wider falling megaphone.

USDJPY Short Set-Up for Big Move Down

USDJPY Rising Megaphone Top with Usual H&S Top with Usual Right Shoulder Bounce Off Wedge Bottom

USDJPY Rising Megaphone Top with Usual H&S Top with Usual Right Shoulder Bounce Off Wedge Bottom

The USDJPY has such a perfect rising megaphone short set-up on its chart that I will be amazed if it doesn’t complete for a big move down.

The red rising megaphone has perfect internal structure.

The classical way for these formations to complete is with a head and shoulders top that carries the price sideways to the formation bottom, and the chart shows a clear H&S.

The right shoulder of the H&S is usually a bounce off the rising wedge bottom, and that’s what has happened here.

There’s nothing quirky like a megaphone right shoulder on the H&S to suggest another leg up the formation bottom–not even on the yen futures contract.

The set-up is to short on the downwards breakout through the H&S neckline and rising megaphone bottom.  The target is the level of the lowest touch on the red rising megaphone bottom.

If you do see the H&S right shoulder start to megaphone after breakout, crossing and recrossing the H&S neckline, a rising megaphone may be forming to carry the USDJPY to a higher high.  Breakouts from complete rising megaphone formations should move down fast and keep moving.

Yen Breaks Out Downwards From Big VWAP Triangle

The Yen has Broken Out Downwards from its Silver VWAP Triangle and Targets the Blue Megaphone Bottom

The Yen has Broken Out Downwards from its Silver VWAP Triangle and Targets the Blue Megaphone Bottom

The yen has broken out downwards from its triangle (silver) across VWAP of the megaphone (blue) it started forming in mid-November.

The target is now the blue megaphone bottom, but the existing guideline will almost certainly be redrawn. You could use a normal triangle target here–the height of the triangle subtracted from the breakout level.

It’s possible but not guaranteed that the yen could put in a false bottom at the level of the previous megaphone low. If you see the yen reentering the triangle, it’s going for that blue megaphone VWAP before reversing and continuing down.

Yen Triangle within Megaphone

Yen Triangle (Gray) within Blue Megaphone is Legal for a Breakout Downward to Redraw Megaphone Bottom

Yen Triangle (Gray) within Blue Megaphone is Legal for a Breakout Downward to Redraw Megaphone Bottom

Yen futures have been working on a megaphone (bright blue on chart) since late November.

In mid-December, the yen starting forming a series of megaphones within megaphones at VWAP of the bright blue megaphone.

When you see a series of megaphones within megaphones at a larger megaphone VWAP, usually a triangle is forming.

That triangle has now formed for the yen (gray on chart) and it’s legal for a downward breakout.

The bright blue yen megaphone would usually make one more trip to the formation bottom to redraw it (usually the first steep line and first two moves within a megaphone get thrown out by the time the formation completes).

The yen has been trying and failing to form bottoming megaphones near the bottom of the gray triangle. The formations either keep getting abandoned incomplete, or complete and break out downwards.

A downward breakout from the yen triangle would be a set-up to short to roughly the new yen megaphone bottom as drawn.

Yen Inverse Head and Shoulders with Megaphone Right Shoulder

Yen Inverse Head and Shoulders with Right Shoulder Megaphone

Yen Inverse Head and Shoulders with Right Shoulder Megaphone

The yen has put in a potential inverse head and shoulders with a megaphone right shoulder.

The megaphone right shoulder has already put in the usual two fake breakouts through the original neckline.

Usually a head and shoulders or inverse head and shoulders with a megaphone right shoulder is a fake H&S or inverse H&S. Usually this potential inverse H&S would take out the low of the head, and that new low would be the head of a real inverse head and shoulders.

However, this rule is not as reliable with inverse head and shoulders patterns as it is with head and shoulders tops. With H&S tops a megaphone right shoulder leads to a higher head over 90% of the time. With an inverse head and shoulders, it leads to a lower head maybe 2/3 of the time.

Yen to Megaphone Bottom

The Yen Cancelled its Potential Rising Megaphone (Bright Blue), Breaking Out Downwards to Navy Blue Megaphone Bottom

The Yen Cancelled its Potential Rising Megaphone (Bright Blue), Breaking Out Downwards to Navy Blue Megaphone Bottom

The yen converted its potential rising megaphone top to a little head and shoulders, then broke out into a trip down to its navy blue megaphone bottom.

That megaphone as drawn is a guideline. The correction could stop a little above it. Watch for some kind of bottoming formation to complete and break out upwards. The target would be at least the navy megaphone VWAP, and possibly its top, though that’s less likely.

 

Yen Triangle

The Yen is Now Highly Likely to Be Forming the Silver Triangle

The Yen is Now Highly Likely to Be Forming the Silver Triangle

There are megaphones inside megaphones leading into rising wedges leading into rising megaphones on the yen futures 60-minute chart.

What it all adds up to is that it looks like the yen is about to make a surge to retest the top of its potential triangle (silver on chart), and then head down to the triangle bottom.

Yen Beaten Back Again – Suggests Drop is Coming

The Yen Failed Again Last Night to Break Out - is Likely Topping Here for Drop

The Yen’s Failure to Break Out Once Again Means It’s Likely Topping Here for Drop

The yen’s failure to break out last night, for the third time, strongly suggests it’s topping here, at multiple megaphone VWAPs, for a big drop.

It’s not clear yet whether it’s forming a megaphone top, a head and shoulders, or a rising megaphone, so it could still move higher before the breakout downwards.

It could also do something like form a megaphone right shoulder on the potential topping megaphone.  In other words, the yen could stay stuck here for many more days or weeks.

It’s even possible that the yen will form a complete topping pattern and then break out the top.

But most likely the yen is setting up for a big drop.  Short on a breakout from a complete topping pattern.