We could absolutely still be working on this ending diagonal. If that’s the case, then we should rally early next week.
That said, there are a few things I’m not very happy with. A lot of the risk signals I watch are leading (and that’s why I watch them), and they don’t look so good. Bitcoin continues to look extremely heavy, and I sort of expected it to begin a good rally today. Obviously I’ll be watching that on and off this weekend for any clues it might offer.
Also junk bonds look terrible. I was sort of hoping to watch them creep up throughout the day, but they did no such thing and closed near the lows. The weekly candle looks absolutely terrible.
Bitcoin has also lost its 60-week EMA, which it has not done (more than for only briefly) since the COVID crash.
The Nasdaq 100 has also closed below its 20-week EMA for the first time since the COVID crash.
We had a pretty reasonable breadth thrust during this last rally, and breadth was even strong up at the highs, but it has deteriorated sharply since then, and worsened today markedly.
Many of the growth stocks I am watching for signs of life got a relief bounce but continued to deteriorate and many have formed bearish flags and wedges.
On the one hand, the put-to-call ratio is a bit elevated, but, at least from what I could see from people discussing things today, no one wants to be short at these lows (because we haven’t seen a good bounce yet), and a lot of the bears want to try to short it from a higher level. And of course I saw lots of evidence of bulls trying to grab this dip. That’s not a very good combination.
And yet, if we were facing a big risk off event just ahead, i would have expected $TLT to hold up better, and it’s been terrible this week. Now if bonds and equities are in the house of pain at the same time, there is the risk that we’re actually facing a real liquidity problem: one that calls for dollars above everything else.
At any rate, you’ve seen this before already, but perhaps I was too quick to expect a reversal of the strong Fed move (that little gimmick I’ve referred to before often works but does not always work). I, too, in this market, have been trained to look up at least as often as I look down, but one day that will change and I don’t know when.
So, it’s possible that we’re in the middle of my earlier thought (that the “D” is in, and we’re headed to “E.” And it’s also possible that we’re in something worse. I won’t have any idea until next week.
I wish I could be more helpful here. I wish all of my signals aligned with excellent counts across the board, and I wish I had high confidence in a particular move and wish I could be right about it. But, I don’t have enough here. I’m open to a lot of alternatives at the moment.
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