A Few Thoughts on the S&P 500

At risk of repeating myself here, I’m still sort of torn regarding the markets here. On the one hand, the messaging from the Fed is clear: rate hikes and tapering should de-risk the market. And on the basis of that, we may expect a largish correction. And yet, while some things I look at look like they could go in that direction, some of them also do not. And so I don’t have clear conviction one way or another just yet.

But, I’ll lay out what I’m seeing here.

First, if $ES was in a big bearish move, we might expect it to have done a 1 down followed by a 2 up, and we should be in the 3rd wave down now. The problem with this is the stair-steppy nature of what should be the third wave that we should be in now. I would sort of expect us to be hundreds of points lower at this point, if this count were correct. Now, that may still come, but I really would have expected some terrific liquidation breaks and we don’t have them yet.

ES

Junk bonds can be looked at in two ways, depending on the time frame you’re examining. On the one hand, it does present us with a “long-term” bearish view in that, basically since last summer, it has been diverging against the S&P (green arrow—not making new highs while the S&P did). And yet, locally (red arrow), in this recent selling, it hasn’t even given back its last rally in full, while the S&P has now given back every inch of its. That sort of presents a bullish picture, at least on lower time frames.

JNK

I would also expect oil to really be telling us something here, and if we were on the cusp of a big plunge in equities, I wouldn’t expect it to be holding up so well here. Instead, it continues to look strong.

There is sort of the same thing going on with Bitcoin, though of course it looks worse than oil. But, despite Bitcoin failing to produce a big rally, it still also has failed to produce a waterfall decline either. That, too, may still lie ahead of us, but I’d like to see it.

My Twitter timeline is especially bearish here and that always makes me nervous, and there are plenty of puts in the system. I sort of feel like we need a rally of some duration to bleed some of that bearishness off.

And so, it’s possible that—unless we actually do get a nice plunge lower of several percentage points in a single bite—that we rally from here in one of these ways.

The first option is the weird thought from last week. It remains valid. That would put us in a much larger, more complex minute (blue) 2. And, after all, we are only in parallel rails (orange lines) and we may be forming a bullish wedge (green structure).

ES

And alternatively, we may have been in a complex structure this whole time such as a triangle, and perhaps we’re wrapping it up now. If this is the case, we would go on to rally to new all-time highs.

ES

So, I remain sort of stuck here, waiting for the risk signals I watch to align better with a single view, or for price action to give me something clear to work with (like a plunging third wave or something to that effect). Until then, I can still imagine things going either way, though I will say that I am leaning slightly to the bullish views at this time.


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