So, the Bearish Bias Was Prudent, Now How to Count?

After complaining that I was going to maintain a bearish bias until Bitcoin actually proved to me that there was not a liquidity sink in the market (here), we did, in fact, sell off a bit today. And, Bitcoin lost its head and shoulders neckline (again). So now what?

Difficult for me to say. Here are some general thoughts:

  1. While Bitcoin did lose its neckline, it’s still not really plunged yet.
  2. Junk bonds were strangely not as weak as I would expect them to be here (the S&P has given back half of its last rally, while $JNK has given back only about a third of its).
  3. Breadth was very strange today, strong almost. Advance/Decline Ratio ping-ponged from 0.78-0.96 all day before finally falling (only) to 0.55 at the close. Little weird for a selloff.
  4. If we’re facing a massive third wave to the downside, I would expect $OIL to have really bit the dust today, but it never even fell below yesterday’s low.

So, hopefully we’ll get some greater clarity soon. As far as a count, I’m not sure if we’ve nested a whole bunch of ones and twos and are in some central 3rd wave or not. If we are, it would help to explain the sort of slow motion selling today, we sort of stair-stepped down all day long before getting some acceleration only finally at the end. If that’s right, we should keep moving down very quickly straight from here.

On the other hand, if these points above suggest that we’re not quite yet at the cusp of a big drop, we may have something like the count below going on, where we’ve done a 1-2 in blue, a 1-2 in orange, and a 1 in red. If something like this is right, we may bounce tonight, then really get going tomorrow.

ES


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