Remain Mindful of the Bearish Alternative on $ES

Remain mindful of the bearish alternative on $ES that I pointed out yesterday. I mean, I’m glad that we’re moving up, because I said we would and we are, but there are a few things that do concern me here.

  1. If I just back up, and try to forget a bias one way or another, this blue a to b structure (green arrow), does look like a mess when I try to count it impulsively. It counts surprisingly well as a correction, rather than as an impulse.
  2. We are approaching a volume shelf (red arrow) which may cap our advance to some degree (anyone trapped at the highs can step off here).
  3. I’m not happy about the equity PCR getting absolutely destroyed here. After such a long correction, people are abandoning protection too quickly, in my opinion. I would rather see us grind up on some worry. This is beginning to feel like overconfidence.
  4. We are building a very terrible structure here with all the gaps. It’s weak. Let me try to be clear about this: it’s acceptable to have gaps like this in a “third of a third” of some significant degree, but all this we’re in now should only really be the third of something like minuette 1. That’s not a great place to build such a weak structure. I would have expected all these gaps to come in a bit later, after the first big retracement.
  5. I would like to have seen a huge breadth thrust here on this rally, and while breadth has been okay, it’s not the ideal thrust I would have liked, so, I’m cautious.

I’m not trying to scare anyone out of their longs, but do be on the lookout for surprises. At this point, it wouldn’t surprise me if we were building a larger flat correction. It doesn’t have to go as low as the orange box, if it comes at all (it may only retest the lows). But, if it does, it will make a 5-wave structure:

  • If we get a sharp selloff soon, one that looks impulsive, that will tell us a lot. If we get that (a 5-wave move down for the first leg of the green 5-wave pattern I’ve drawn in the chart), we would expect a bounce for “2,” etc.
  • If we get a retracement that is only 3 waves down, that would be more productive.

ES


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