Perfect Spot for a Megaphone Stall-Out Into NFP Report
The S&P 500 seems to be forming a falling wedge to its complex H&S multi-neckline area. This is a spot with great odds for a megaphone to form.
First, the falling wedge is likely to run out of steam with the minimum number of required touches on its sides. That almost always results in the wedge breaking out into a sideways move like a megaphone.
Second, S&P 500 has multiple retrace targets above and yet still hasn’t reached one of its neckline targets below. The way it would usually carry out the trips to these conflicting nearby targets is with a megaphone.
Third, the nonfarm payrolls report is next week. Big turns are often made in the days around that report, and the market loves to use megaphones to buy time.
A megaphone here would put a megaphone right shoulder on the H&S on the chart. Usually megaphone right shoulders are a tell of a fake head and shoulders, with the megaphone right shoulder leading to a new high. But that’s not the case when there was a megaphone left shoulder leading into the head of the existing H&S.
A megaphone right shoulder after a megaphone left shoulder would usually break out downwards.