Adding some thoughts to the post from earlier. I had some of these jotted down, and forgot to add some of them. But, I think they’re also worth considering, so I will just run through them quickly here.
Volatility
It is a bit ominous that the $VIX will not give up this green trend line beneath it. The fact that we have been unable to, despite the magnificent rally we just had is telling. I was expecting a big rally (much later in time) that would crack this trend line, bringing us into a volatility regime change. That was part of my bull thesis. Instead, we got the tremendous rally early, but no volatility regime change. That makes me think this might now go higher.
Likewise, $VVIX has a similar rising structure. What are institutions doing here, hedging like this? Do they see a market top coming?
And finally, $VXX has formed some excellent bullish divergence on the daily:
Divergences
We have both broader, long-term bearish divergence (green) on the weekly $ES RSI, and shorter-term (red) as well. This is not a good look, especially given the rally we just had. You mean to tell me that—despite that rally—momentum has declined? That speaks loudly to me. Other indices look like this, too.
Counting waves on the RSI
It is sometimes difficult to know which degree of structure we are in when looking only at price action. However, the weekly RSI gives us an interesting means of comparison. Since the COVID crash lows, we’ve had two RSI dips that are approximately as deep as each other, and so may be of the same degree. We are thus permitted to count the structure this way:
Doing it this way allows us to see how primary (pink) 2 and 4 look to belong together in degree, as do intermediate (orange) 2 and 4.
Many Individual Rallies Were Fakes
I believe much of the recent rallying was corrections completing. I can’t post them all, but I saw several examples of this. I will post one, $TLRY. As you may recall, I suggested it may bleed to death (here). While, yes, the market’s been rallying, and yes, breadth improved, but look where this rallied to. There is an excellent chance for this to fail from here. A lot of stocks did this, finishing a corrective move up, lots of growth stocks that have already been in long declines; not rallying in strong, new impulse waves up.
So, I feel like much of the breadth was “fake.”
I probably have more stuff, but you get the idea. Watching the whole elaborate nexus of these things started to lend greater and greater credence to the bear thesis here, in my opinion.
Rsi based count is quite ingenious.
Many thanks 🙂