I Am Going to Adopt a More Bearish Tone: Here’s Why

Recap:

  1. I had adopted a bullish stance, which was prudent, as we eventually rallied quite powerfully. The count I have been using counts a significant low in place, and this rally as needing a retracement.
  2. I have acknowledged the presence of a more bearish alternative (here) out of an abundance of caution.
  3. However, taking a wide view of the risk signals I look at leads me to want to increase my risk aversion here. I will detail some of those below.

I’ve already complained about this a few times, but Bitcoin is not rallying powerfully as I had expected. To the contrary, it’s been rather weak. I’m not going to ignore that. Here is how I am going to count it until it proves itself with an enduring rally. It’s a long and complex correction, ridiculous actually (mirroring this long and complicated period we’ve been in with equities). But, it could very well need another leg lower.

BTC

Some of my bullish thesis depends upon a big rally in the beaten down growth stocks. Now, with the present rally in the market, many of them have rallied, but I’m not so sure I like the rallies at this point. Instead of being new, powerful impulse waves, they could—at this point—be merely relief rallies.

$ZM is a good example. I haven’t updated the labelling on this in order to prove a point. It counted well as complete back there where I had stuck my intermediate (orange) 2, but it then went on to make yet another low. I’m not sure what I want to do with that just yet. Setting that aside, we did then finally get a nice, big, 17% rally starting on December 15th. But now we’ve almost given all of that right back up again. And just looking at the whole thing at the bottom here, yeah, it sort of looks like a bear flag and I don’t like that. So, as with Bitcoin, I’m going to assume this may need to go lower until it proves to me otherwise by delivering a clearer 5-wave impulse.

ZM

Some of the other growth stocks are a bit like this too, and I don’t like it. $TLT should have sold off during this rally, but it’s been holding up pretty well. Also, $JNK, which isn’t exactly falling apart by any means—and may even be breaking out—actually still sort of looks lagging to me, being nowhere near its all-time high while the S&P is strongly so.

JNK

That kind of divergence is a risk off signal (speaking of divergences, note that the S&P is the only US index making a new high).

So until some of these signals improve, I am leaning toward the view that there is much more risk in the market than we may see at first glance. If we’re facing another selloff, the precautionary bear count is probable, though I think, after further consideration, that I will modify the labeling a bit (though the ultimate outcome will be about the same). If we sell off, I would expect there to be a relationship between the lengths of minor (green) C and A. I have noted a couple on this chart.

ES


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