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.

10 Comments (To enlarge images, right click on image & then click "view image") → Size Matters

  1. AdecsRay

    Moe: A lot going on it seems. Quick update on XIV- the ‘reset’ from it’s negative divergence with the mkt looks like it’s completed as anticipated and XIV should now be moving higher and taking the mkt with it (or vice-versa: same result). New highs for XIV may occur but are not required for the next mkt up leg to complete.

    The process still has the 3-push higher degree a/d study (ES) that has printed what looks like a completion with the exception of a retrace up (after top completion and partial move down). If valid, a 3-push normally returns to it’s breakout point and/or beyond at very roughly 2200 ES. As mentioned before, this is a higher degree study which can get tricky but it has not yet wandered off the course expected by the process.

  2. ewtnewbie

    Falling MP on the intraday chart for Friday? We just tagged and pierced the top of the formation and are now back inside it. I believe that is a reason to short. Also, ran into a Fib resistance level from the 2358.25-2040.50 at 2349-2351.50 resistance level. PT is 2336.50 and etended PT is 2330. TGIF

        1. ewtnewbie

          Oh yeah, it was pretty obvious they were buying with that IH&S as well as opex pin and French elections. Had to prop as much as possible for 235 pin. They missed it though.

          Next week should be very, very interesting!

  3. snake oiler

    Thanks, Moe, been totally confused the last couple of days. i think the market in general is too. question: when price begins to drift sideways in the 3rd or 4th wave of a megaphone, does that mean it violates the time proportion element (I know nothing about Elliott Wave) and that we need to draw the megaphone bigger?

  4. ewtnewbie

    Great stuff Moe! Great stuff! Looks like a nice straddle in the options world is the way to play this triangle…bet both sides and look for the big move to compensate you for the losing side. VIX is relatively low and sideways is the only way you lose for sure.


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