Things I Like and Things I Don’t

I’m not going to be quite as ridiculous as looking for a reversal for days and then immediately changing my mind the moment we get it, but in an effort to remain as objective as possible, I want to lay out evidence I see for both cases (a top is in vs. we need another high).

1. I said that my gut told me the “bull flag” was going to fail, and it did. That part’s great.

2. Surprisingly little technical damage has yet been done. Lots and lots of EMA support here on various timeframes:

ES

3. I am inclined to count this as a 3-wave correction, like this, falling out of a triangle—at least so far:

ES

4. You may remember a somewhat similar structure that we had recently, namely, in early September, where we also fell out of a (much larger) triangle:

ES

Now, back then—in September—that minute (blue) a-b-c was all just the constituents of minor (green) A. And we don’t yet know if this present 3-wave structure is an A (of some degree) or a 4 (of some degree). I would expect it to be a 4 here though, but we will have to see.

5. I mentioned this before, but I still don’t particularly like that we’ve seen almost all of the selling happen during market hours. As prices fall, people begin to get scared, and they start hedging, and the more we fall in market hours, the more time they have to hedge. And the more the market is hedged, the less likely it is to fall further. It is preferable (if we’re expecting a much larger correction) to see some overnight action that traps people and forces them to make hard decisions.

6. $RSP looks to me to be forming an ending diagonal. (It doesn’t have to be a scary primary [pink] 5 up there; it could a top of a different degree, so don’t get too excited about that just yet). I would expect it to need to make one further high before a much bigger correction, though I have seen stranger things in my life if it does not.

RSP

7. It is good that $VVIX closed above 110. That implies institutional hedging (in the $VIX itself) and it’s always good to be on their side of the trade.

In sum: I would be much happier here (as a bear) had we closed below some EMAs (Christ, we’re not even under the 10) and had we crafted a more obviously impulsive structure.

I continue to expect a monster correction; I’m just not yet sure if this is it yet.


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