If We Do Not Take Out the 9/3 High Tonight, I Will Adopt a Medium-Term Bullish Stance (Few Weeks): Here’s Why

The risk signals I’ve been seeing made me bearish, and that looks to have been a reasonable stance to have adopted here. It remains possible to count $ES as a series of ones and twos to the downside, but it’s looking clutch at this point. One can only put in so many ones and twos but at some point, you’ve got to see the threes or otherwise it’s just wishful thinking. Without taking out the September 3rd high with a murderous expansion of range, I will be doubtful of the nested bear count. As the waves unfold, what we should be seeing is acceleration, but we’re getting contraction here instead (hence the bullish wedge).

I’m listening loud and clear to that. I was right to be bearish here, but I also don’t want to overstay my welcome. I think that “bad dream” count is promising for several reasons (in addition to the ones I discussed in that article). The volume spike today is a symptom of a capitulatory low, but, realistically speaking, we’re not all that low in price. That, my friends, is the definition of strong support. Let me show you what I found by checking the volume on an intraday chart.

Imagine these two circled areas as two distinct candles and you’ll immediately see the problem. When dealing with high volume, we want to see volume confirmed by price. We got that overnight (high volume, moving down lots), but look at where most of the volume traded. All in what would look like a stubby candle compared to the one before it. Someone soaked up every last penny of that selling. That may signal a strong reversal coming. The majority of contracts traded without a commensurate movement in price.

ES

Now, all these risk signals may still be signaling a topping process, but I was watching all of these in January of 2020, too, and they were all screaming then, but things didn’t get interesting until the end of February. It is possible for us to rally for some time before things really play out, who knows.

Just like junk bonds didn’t confirm the move up ($JNK was falling while $ES rallied)—and we were rewarded with this nice correction, it’s now not confirming this move down. While the S&P has made a lower low from 11/26 to today, $JNK made a higher low between those two days.

Also, let’s take a look at $IWM. I first presented this strange possibility here, and it’s done well. If I didn’t know any better, I would say this present move looks finished (remember “E’s” often fall short of trend line strikes). I would expect this to rally strongly from here and that fits the “bad dream” idea from earlier on the S&P.

IWM

Given the nature of what I think is a capitulatory low today, I would not take it to be a merely several day low. I would expect it to stick—as a low—for even a few weeks.

So, if we actually plunge, good. But I don’t think we’re going to. Everybody has finally shut up about the stupid Christmas rally, and so now I bet they get it.


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