ES Rising Megaphone Top, Potential Nested Head and Shoulder Tops, and Megaphone Top
E-mini S&P 500 (ES) has drawn a rising megaphone top (orange) on its 60-minute chart, and it bounced off the bottom Friday.
Rising megaphones usually complete with a head and shoulders (H&S), with the right shoulder a bounce off the bottom before breakout.
This makes ES a strong favorite to retrace to roughly 2080 and then break out downwards to complete a nested set of head and shoulders and retrace to at least 1875.
But watch out for a megaphone right shoulder. If ES heads down to the orange rising megaphone bottom/blue H&S neckline before having reached 2080, it’s likely forming a megaphone right shoulder, and that would usually mean a new high for a larger H&S.
ES could also get bogged down in a megaphone right shoulder at its larger H&S neckline at roughly 2000, and put in a higher high from there before reaching 1875 (purple scenario).
Gold Rising Megaphone Top within a Complicated Set of Megaphones
Gold confirmed a rising megaphone top (silver on chart) on Friday when it took out the March high. This rising megaphone top is forming at VWAP of the big red megaphone on the chart as well as at the top of the blue megaphone.
The rising megaphone means gold is a strong favorite to retrace to the red megaphone VWAP to try to draw a H&S sitting on it. The H&S is likely to eventually break out downwards for a retrace to at least the blue megaphone VWAP, which will put a large potential inverse H&S on the chart (purple neckline).
Gold can then head up for a breakout from this inverse H&S with a target of roughly the red megaphone top. If we get that move, get on it because it will be a melt-up.
But the extended topping at the red megaphone VWAP suggests a different scenario is more likely. This kind of protracted topping at a major megaphone VWAP is what you tend to see before the megaphone breaks out downwards (purple scenario).
Remember that this is a chart of gold in dollars. I’ll do a separate post of gold in euros.
Oil and the Dollar are at Critical Decision Points
Crude oil closed Friday at a critical decision point at the top of its silver price channel. A small pierce of the channel top, followed by a partial pullback into the channel and then breakout upwards, would be a melt-up set-up. Oil could literally melt up to 100+.
But if oil fails to trigger the melt-up set-up, we should see it start a top for its move off the low.
Meanwhile, the US Dollar Index closed at the bottom of its blue price channel, at the same critical decision point as oil, except in reverse.
Because the dollar has gotten to this point within a megaphone (red) inside a megaphone (blue), it is likely to bottom here for a retrace to the multi-megaphone VWAP area unless something truly major is happening with fundamentals (war in Middle East, credit crisis–something like that).