Humor Me One Ultra-Bearish $ES Count

My primary view is that we may be reproducing the Nasdaq 1999-2000 fractal. Why?

Partly because there is no good way to count the indices impulsively, and the A-B-C pattern is vastly superior. I also won’t be surprised to see many of the growth stocks rally after the long beating they’ve endured. And frankly, I find the similarities between the two fractals to be quite striking. I will juxtapose them again so that you may review them:

1999-2000:

NDX


And today:

NDX

Those beautiful initial (orange) A-Waves are uncannily similar. That said, they aren’t perfect replicas: today’s version is huge in terms of time (and price) compared to the last time we saw this fractal. Whereas in 1999-2000, the final C-wave took about six months, this one should take about a year. And I do find it hard to believe that the market cap of the mega caps can actually keep getting even more mega, but obviously, things have been crazy and they can get even crazier.

I’m not married to this view. I still will want to see a decided bottom, and the beginnings of an enormous rally from wherever we decide my big pink B wave will go.

There are a few other things that make me cautious. I listen closely to some Wyckoff experts, and they are quite concerned here. The volatile nature of the decline in November is—on their interpretation—a telltale sign that the market has already been passed from “strong hands” to “weak hands.” The “E” wave of the 1999 fractal was not nearly as volatile. That may be a clue that back then—at that point in its own fractal—the market was still firmly in the grip of “strong hands.” And for the Wyckoff guys, that passing is something from which we will not recover for some time. They are looking for an outright bear market, and it’s unwise to ignore them. They have been in the market for quite some time (longer than me), and are experts at detecting distribution.

And so, let’s see what we can do with $ES here to justify a top, in case we need to. I can actually keep my A-B-C count, and move the triangle to the left, and get the big pink C in at the November high. And, interestingly, there even is a fib relationship between the lengths of primary (pink) C and A (23.6%).

Now, I had toyed with the leading diagonal count before, but the final low mucked that up (red arrow). However, that low can actually work well as an expanded flat, and so I’ve depicted it that way here. I’ve been doing expanded flats to the upside for so long in this permabid market that it wasn’t immediately obvious to me how to see it here to the downside. But, as it turns out, it’s quite nice because:

  1. It gives us a reliable 3-wave correction from the 12/1 low.
  2. There is a beautiful fib relationship between the lengths of minute (blue) c and minute (blue) a (2:1).
  3. And while the retracement is very deep, it’s actually sort of the expected retracement for a leading diagonal (89%).
  4. That little spiky high satisfies both of those (green arrow).
  5. And while $SPX cash looks to have finished blue c into the close, the high on futures precedes that and the price action since can be counted as a nest of ones and twos.

Devilish.

ES


So let’s remind ourselves of one thing: what popped the 2000 bubble? The Fed raised rates. And what are they doing right now? What was Powell’s language? “We need to retire the word transitory.” So, if they raise rates, and the market’s puking, I may not keep looking for my B wave. And I want to alert you to that in advance. But if they don’t take away the punchbowl, I can see us having a blowoff.

I’d prefer just getting into a damned bear market because this is all just so ridiculous (and I am bearish almost by nature at these prices), but I’m willing to play along if I think we’re going to go straight up.

I suppose the clue for me will be: the nature of the decline. If it’s a 3rd wave, it should be tremendous—crashy evenand it should also be followed by a 4th and a 5th. The E-Wave shouldn’t do that. That should be a single 5-wave flush and be done. But if that’s followed by more selling (a 4th and a 5th), then we’re in trouble.

So, I’m just keeping my options open and trying to keep my eyes open in all directions.


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