It was prudent to be bearish during the sideways chop we had been in because it culminated in the selloff we just had. That said, it’s important to adapt and reassess.
The very bearish counts need us to move much lower and much faster. In other words, if this were a one down two up, we should be in a third wave down and I feel like we would all know it. Looking at it as it stands, there is a way to count the advance as an impulse wave (the orange 4 of the blue 1 is a bit big compared to the 2, but not too terribly so), and looking at the proportions of the selloff, it has the “look” of a 3-wave move. And: it came right to the 50-61.8% retracement of the prior advance, so all of this—barring another selloff—is an excellent setup for a 1-2 pump.
Things I would like to see in the coming days: a vast improvement in breadth, at least one high volume green daily bar, and Bitcoin finding its legs.
One quick look at two bond-related risk signals I look at.
$JNK, which warned us in the November highs that something was afoot, now looks pretty bullish here at these lows:
$TLT, which I had favored to experience a relief rally (here), has done just that and may resume its expected downtrend. It’s not clear to me just yet how to count the relief rally, but it certainly went a far way toward the orange target box, and perhaps that is good enough. The move from orange 1 to orange 2 certainly looks corrective in nature.
[UPDATE]: Here is a more refined count of the S&P. In hindsight, what looks to me like a 3-wave decline can be better understood with a triangle b-wave in the center, like this (very hard to see while you’re in one):
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