The Great “Bull” Case

I am open to a big pivot here. In “The Great Bear Case,” I began pointing to the mounting and troubling signs in the markets and I added thoughts here, and here (and in a few other places as well). That wasn’t all for naught as we soon entered a terrific corrective period. Those signals pointed to a topping process and in such an expensive market, we must remain open to the possibility that any particular top isn’t just a top but rather the top. And so I was open to that. So what’s changed?

Well, for starters, this is what I wanted to see. A real expansion of range to the downside. I think I even referred to that as a “murderous expansion of range” at one point. Doing so would allow us to interpret the move down as a genuine impulse, from which we would have no doubt about what was coming. But we never got it. I set conditions and they weren’t met.

Furthermore, Twitter has provided me with an invaluable insight into participant sentiment. And in the early stages of the decline, I was full on bear-tard and got so much pushback. It was delicious. It gave me confidence that people were, in fact, hyper bullish there and that we would continue the decline (and we did). But in the last two drops (in which we barely made new lows) a huge swing in sentiment happened and people (so it seems to me) swerved wildly to the other extreme. Everyone is one foot out the door. Markets just don’t top that way. And now that I’m announcing my renewed bullishness publicly, again, I’m getting tremendous pushback. What we need to see is a huge impulse down in which everyone sighs with relief and says, “That’s the much needed correction we’ve been waiting for.” That’s when it’s all over. And that’s not here. Not even close.

Let’s do some charts.

I first noted that $QQQ formed a high-probability triangle here and that’s still good. And that leads us to the problem of what to do with $ES, which is difficult to count here. I had been viewing the move as a leading diagonal, but Friday messed things up:

  1. The green arrow low should have been the overthrow low, the final leg of the structure
  2. But if so, we should have exited the structure in a much larger wave two and the orange arrow high is much too small for that to be the case
  3. But it would have to be since we made a new red arrow low

ES

It’s not a good count. We could try to salvage that by moving the waves to something like this below (making the last overnight rally a four—orange arrow), allowing Friday to be the 5th and final wave, but then wave one (green arrow) is absurdly too big. And so it’s a terrible count as well.

ES

But then here, like the Nasdaq 100, everything is forgiven if we make it a triangle too. A large, 3-wave move, minute (blue) a-b-c. And we would expect minute (blue) c to stop right in the box in which it did. And so if it’s all a 3-wave move, it’s a correction. And if it’s a correction, then we’re going up next. And a lot. Furthermore, that green trend line coming through on the bottom of the chart is precision plotted from the October of 2020 and 2021 lows. It’s the point at which someone consistently wants to own this market. And, unsurprisingly, they began their magic at precisely that tick just when everyone else is full on panicking and the $VIX was giving us a 3-sigma move.

ES

So, let us suppose that was a major low. If it was, what would an overall count even look like? And this brings me to the most important part of this article.

Everyone and his or her mother is now looking for something like below. Lots of people also believe the 5 to be in, and I’ve dismissed that until we see an obvious impulse wave down (and I don’t think we will). So let’s suppose the five lies ahead. I’ve seen this movie before: if everyone thinks a high lies just ahead, it will go up even more strongly.

ES


And this raises a most important point that I have brought up twice before (in section #6 of this article and also here): it is possible that the market, despite giving us the appearance of a strong and impulsive rally, is actually—technically speaking—in a corrective pattern. And now after weeks of careful consideration, and especially intense thought over the last few days, I now believe that we are, in fact, in a “corrective” pattern and I want to spend much of the rest of this article defending that view because if the view is defensible, it is going to tell us a very great deal about what is coming. And it’s rather shocking so I have to defend it or you won’t believe it. That we may be in a corrective pattern, despite going up so much is why I’ve placed “Bull” in scare quotes in the title of this article.

Let’s start with some honest questions:

Is this an impulse wave?

ES

No, it’s probably not.

And this?

ES

Not really, no. Let’s be honest. Not at all really.

And what about this?

ES

Almost certainly not. And that’s why so many bears died coming out of the COVID lows: the price action was obviously corrective in nature and so the assumption was that we should turn lower again at some point and we never did. And we all only do our best to count it impulsively now because we’ve gone so high.

And yet, how about this: is this impulsive?

IXIC

No, it really isn’t. And speaking of which, what happened to my $AAPL ending diagonal (discussed here)?

AAPL

What are we still doing up here? Don’t you know how ending diagonals end? We have a very recent example of such a structure. This is how they end:

ES

They leave no doubt and so perhaps we should then doubt that it is an ending diagonal in the first place.

As it turns out, I have seen this sort of structure before in my lifetime [shudders]. Scroll up again and look at the Nasdaq chart just above us one more time.

And then take a look at this:

IXIC

Now, stay with me. I’m going to run around for a moment and swing back to these soon.


Much like most of the world expects a 5 (if not already in) just ahead on the S&P 500, they also believe so on the Russell and that’s been my thought too until now, like in the chart just below. But there is an obvious problem with such a count: four is much, much too big to be matched with any kind of two down there that we can get. It’s huge.

RUT

And is this really an impulse wave?

RUT

Not really, no. We would only try to count it that way if we went shooting up after it and we did. But, you know, I see something else in there that supports the view that we’ve been in a correction all along. A big, beautiful triangle:

RUT

And so, while my “Weird Thought“—in seeing the whole top as a triangle—was probably right, it doesn’t mean it also has to be a four. Triangles can happen either in fours—or in B-waves. And voilà:

RUT

We’ve had one true, bona fide impulse rally on the Russell and that’s the intermediate (orange) C of primary (pink) A and that’s where it should be (C-waves are always impulse waves except the C-waves within triangles). But this implies that there will be a primary (pink) C and we’ll return to that in a moment.


Now, I started with the Russell because it’s clearest to see there, but we can do something similar on the S&P. It’s a more complex structure. On it, we have had three bona fide impulse rallies (orange arrows) and they are, on this count, the C-waves completing A-waves of various degrees. Everything else is slop. Now I find it interesting that we can draw a channel from the June and August highs and to COVID low and it captures Friday with such precision.

SPX

And so likewise on the Nasdaq Composite, we would do this:

IXIC

And so now let us remind ourselves of the last time I saw a similar structure in my lifetime [shudders]:

IXIC

And I bet I know the culprit behind this structure (today), too.

And so back to the $AAPL “diagonal.” Does that cycle (yellow) four look a bit small to you for a wave of that degree? Indeed I think it does.

AAPL

Oh Dear. Perhaps it, too, is a triangle:

AAPL

And this would imply that we have a cycle wave 5 coming.


Other evidence:

— Bitcoin looks set to launch (here).

— Growth stocks have endured a total bear market this year and many of them look to have formed twos (here, here, here, here and here for instance). They have been destroyed and I don’t think they will stay that way (many have lost 80% of their value from their highs). In the dot-com bust, they started annihilating the meme-ish things (*cough* pets.com) in February of 2000, and the market topped in early March. If they were planning to gut our meme-ish things while using $AAPL et al. to prop the markets here, I think they already would have rugged it long ago.

— Commercial Loans and Leases is not showing any signs of deflationary forces, but rather, a robust increase in lending (i.e., the money supply):

FRED

— LEIs look strong:

LEI

— The Dow also has a similar structure here. Remember that funny trend line I discussed way back here? I think it is serving as the “base” of its respective triangle “B-wave”:

DJIA


I have no idea what could cause all of this but my suspicion has been something like what Karl has just suggested today (my thought has been that we move past the virus and lockdowns suddenly, with all this extra money in the system):

If you’ve studied the Spanish Flu, you’ll know that there were two prominent “sickness” peaks but three “waves” of the virus. The last one was mild and yet also the most transmissible. And lo and behold, we had our original strain, then the delta strain as the two most prominent waves, and now omicron appears to be the most transmissible and yet least serious. Something about some human viruses: it must take them 3 tries to figure out how to use us without also killing us.

Imagine once our overlords figure that all out and cut all the restrictions, etc. around the world. Imagine the euphoria wash over the world as we’ll feel like this is finally all behind us. It’ll be amazing. There’s a catalyst if you need one. (Another addition might be the adoption of leverage by pension funds).

And the market (smart money) always leads. So we can start this rally right now before we hear about a scenario like this in the news.

I’m just guessing here. But something like this might be coming, that’s been my suspicion.


Now, let’s guess at some targets.

$NDQ (TradingView is now using this ticker for what had been $NDX—is that new everywhere? I haven’t seen that discussed anywhere), but we’re talking the Nasdaq 100 here:

In 1999/2000, primary (pink) wave C was 2 times the length of primary (pink) wave A in price:

NDQ

And primary (pink) wave C took just under 1 times the length of primary (pink) wave A in time:

NDQ

And so for us it would do this. 29,700 or so by around October 2022. And since it’s a “C-wave,” we would expect to go there in five huge impulse waves.

NDQ

On the Russell, first, examine this long-term channel (mostly ignore the count, as I’m not settled on it yet, but the channel looks promising):

RUT

And so now that you see where that comes from, zoomed in:

We get virtually the same date and a potential channel strike all at the same time.

RUT

And on the S&P, I really don’t know if it can hit either of these, but I’ll mark the 100 and 200% extensions in price and the 100% extension in time. The S&P didn’t go up like the Nasdaq in 1999, but the S&P wasn’t nearly so heavily weighted by tech companies then as it is now, so I can’t really say. I can see us doing something that none of can understand.

SPX


The speed with which everyone becomes bearish at even the slightest pullback tells me much about the latent bearishness in market participants. Perhaps it will take a stupid, stupid rally like this to cure it of that. We really do need to end on euphoria. And that could be so far away that none of us will believe it when we get there.

If liquidity returns to this market, it may not stop all year and most of next. It is possible that no one is bullish enough.

I don’t know what this means for bonds. But maybe a lot of the money comes from them. What about the dollar and gold? The dollar rallied like mad in the late 90s and gold puked in the final melt up, so my recent views on those might roughly work out still.

Also, the $VIX rose strongly for a long time in the 90s melt up. It could do that here, too. Options could become very rich in premium.

So, these are my thoughts. I now think this is all a real possibility, looking at everything I look at. We puke tonight, Bitcoin dies, any signs of trouble and I’ll reconsider the bear options. But until then, if everything looks strong, we might start going and not look back for a very long time from here.

Friday may have been the bottom of a major structure across all indices.


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


5 thoughts on “The Great “Bull” Case”

  1. If there is going to be a 5-wave impulse from here, an event like that would likely coincide with one of the corrections, perhaps the “two.” But they of course won’t let the U.S. default. They’ll do some political posturing to strike deals but they won’t suspend the limit indefinitely.

Leave a Reply

Your email address will not be published.