Month: February 2022

It Is My Hope that Bitcoin Will Soon Give Us Some Clues

dereckcoatney1 Comment

In line with my last post about the remaining uncertainty in the markets, I will provide some comments on Bitcoin here.

  • Unlike equities, which made a lower low from late January to late February, Bitcoin has made a higher low (red arrows). I take that to a positive sign given its ability to serve as a measure of liquidity.
  • That said, though today’s rally has the appearance of the 3rd wave I have been expecting—nice and powerful (that’s the minute [blue] 3 we’re at now), 3 waves isn’t enough, and we will need to see a 4 and then a 5 (of the blue degree).
  • In doing that, we will also finally overcome the head and shoulders neckline I have referred to many times over much of this year (the orange line) and it will also take out the February high (orange arrow). All of that would be very bullish.
  • If we do that, then I would be fairly confidently bullish at that point, market wide, on everything (maybe not Rubles).
  • But until we do, I will remain cautious as a failure here would be quite bearish. For instance, you can see that by not making lower lows between January and February (which has given equities a bullish wedge), we can probably draw a fairly significant bear flag on here if we wanted to.

BTC

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Some Observations on the S&P 500

dereckcoatney1 Comment

It is possible to count the whole corrective structure off the all-time highs as a 3-wave corrective pattern (that’s the pink A-B-C), with the February 24th low being the end of a “C” wave of not insignificant degree. If that is the case, then we would expect to have powerful, impulsive rallies for some time. The initial move off the low looks good as an impulse, but last night’s gap down and subsequent rally created an odd structure (orange arrow). We have also only so far managed to barely reach the channel formed from the COVID crash low through the January 24th low (that’s the purple channel you see, and our relationship to its position is market by the red arrow).

  • If we are bullish, we will want to see whatever this recent price action is finish something of a 5-wave move (for this green 1), followed by a 3-wave retracement (for the green 2), ideally to the orange box below before rallying powerfully up and out of this large bullish wedge we are in (the large green contraction I’ve drawn). That should then be followed by some consolidation and a further high completing five minor (green) waves.
  • If we we are bearish, and this is a short covering rally or simply a bear market rally only, it will fail at some point in grand style.
  • It is unclear to me which of these two outcomes will prevail, though I remain at least inclined to the bullish view, mainly because of sentiment, and the lack of data pointing to a recession, which often accompanies bear markets. (I have pointed that out before, i.e., here).
  • For the time being, I will continue to watch the structure develop, and look to the cash session as well, to see if a clearer wave structure develops.
  • If Putin does retaliate in some meaningful way, I can imagine contractionary forces strong enough to justify a sudden onset of recession which would then also justify a bear market, and I would quickly look to the bearish counts.
  • But it is also possible that Putin folds, sues for peace in some way, and with those fears resolved, the bull market may easily go on.
  • In sum, we’re at a tenuous place: I can justify moves in either direction, and I will simply need to watch how more of this develops before I can become strongly convicted one way or another.

ES

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I Maintain a Bullish Bias, But Also Remain Open to Bearish Outcomes

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I have previously discussed evidence that (at least so far) casts doubt on bear market hypotheses. There are some others that we can add to those now:

  1. The 3-wave move discussed in the article linked to above is now even more apparent on the U.S. indices than it was when that was written
  2. While the indices made new lows against the January 24th low, Bitcoin interestingly did not
  3. Off of the February 24th low, the indices have—apparently—made fairly impressive impulse waves

That said, the geopolitical events remain concerning, and we cannot yet fully comprehend all of the fallout—especially in the financial markets—from the sanctions many countries are imposing on Russia right now. Given those unknowns, I of course am open to recessionary forces coming on faster than leading data can get to us, but until I see even further market weakness, I remain inclined to the bullish view. Inclined does not mean drunk in love with all-time highs. I’ve just got to see what happens here.

So, for the time being, I suspect that the S&P 500 has produced a first impulse wave up in what could become a larger, 5-wave impulse. So, I’m looking at minor (green) 1 being in, and that we may be in the minor (green) 2. That should unfold in a 3-wave pullback that ideally gets to the orange box below, but may also go as low as the 2/24 low before the count is invalidated. So, if this is “a” of that move, we may get a rally (for the “b”), then another pullback (for blue “c”), then off to the races.

ES

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My Work Will Soon Be Supported Using a Patreon Tier Model

dereckcoatney1 Comment

Just a quick update alerting everyone to some website changes that will be coming up.

In this post, I described to you my reluctance to heavily market my work (because I find it difficult to point to myself constantly) and I explained that I would be turning my work into a public resource for the time being, as a trial to see whether I could drum up sufficient demand for the analyses that I enjoy producing. And, after a few weeks of experimenting with that, I believe I now have sufficiently exposed my work to a wider audience, but, as feared in that article, it was very much a steep pay cut, as very few people donated to support the work. I choose to interpret that as an advertising expense well spent.

When my work was previously private, the arrangement I had decided on was not without fault, as there were folks willing to pay more, and other folks willing to pay less, and having one, single price for the work was not ideal. So, I have decided to make use of a Patreon integration, which will allow me to use their “tier” system to offer varying degrees of work to folks of varying need, a menu if you will.

So, I have divided up the work that I produce and have added a few new features, and I will let people choose their own level of interest. As you folks already know, throughout each month, I write articles of a more general character as well as some that are more technical in nature. I have also now added a chat lounge, and two places where I can more easily maintain Elliott wave counts for assets that I am presently watching (one for the S&P 500, and another for other assets). Adding those wave count sections has proven to be of great interest to the public (very heavily trafficked) and it has saved me from the trivial task of writing actual articles which say things like, “no updates of significance to the count at this time,” etc. And, as always, I will continue to accept chart requests, though I have elevated those to a high tier because it typically takes me at least an hour or two to thoroughly generate those analyses.

More specific information may be found on the About page here, and similar details (and prices) may be found on my Patreon page here.

I will be turning the Patreon integration on in a week or so, giving folks time to look around, and time to consider the various tiers I have chosen before any of it actually goes live. Be advised, as it is nearing the end of the month: Patreon charges new patrons when they first join, and then again on the first of every month so if you join a tier now, you will be charged again in just a few more days.

I hope that many of you enjoy the new arrangement and, of course, if you have any questions, please feel free to ask me.

Note: When my work is first published on this website, it is made available to patrons who support my work through my Patreon account. Over time (usually after a period of a few months), I make the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page.

Here’s My Thinking Here

dereckcoatney3 Comments

It’s frustrating for me to have untold legions of people criticize me for being bullish here—cautious, to be sure, but yes, generally bullish—but I continue to believe this is only a correction. Now, part of that comes with the territory of having a big account, and putting myself out there, and I accept that. But I don’t easily tolerate emotional people screeching at me, making the flawed assumption that I’m being bullish just because. I have reasons, and I’ve elaborated on many of them recently, but I thought I would bring some of the thoughts together to defend my position to some degree, so that folks know that I am—for all of my many failings—actually attempting to be rational here.

  1. We know that markets, historically, can tolerate rate hikes well, often for quite some time before a bull market ends. And we haven’t actually even seen hikes yet.
  2. We have no 10Y/2Y yield curve inversion here (though it’s moving in that direction), and even if we did, it would mean little to us here today as markets tend to top (on average) six months after such an inversion.
  3. Much of this recent selling has been news-related. Historically, news-related selloffs are almost always reversed.
  4. Historically, wars are, as awful as it is, often not as bearish for equities as we might want to presume. And it’s not even clear yet to what extent we might classify this geopolitical event as “a war,” nor to what extent the U.S. will be involved.
  5. Bear markets are most often associated with recessions. And presently, the economy is still growing, though its rate of change of growth is slowing. Now of course many, many individual names have had outright bear markets, but as far as whole indices, it’s not something we typically see without also seeing recessions.
  6. Bear markets often start on peak euphoria, and frankly, most of the sentiment data seems to point to the opposite: that since the COVID crash low in particular, sentiment has been especially bearish.

I have more, but you get the idea here. I’m not simply shooting from the hip. I am acknowledging that none of this stuff points to a market top. And thus, so far as I can conclude in advance, this appears to be merely a correction. And now that raises a new question: how big and how long? Extremely hard for me to say.

I know that the vast majority of corrections in stock market history take on the appearance of a 3-swing structure of some kind.

And so, even at the January 24th low, I could see a 3-swing move on the S&P 500, like this:

SPX

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Here Are Some Thoughts I Have on Gold

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There are lots and lots of ways I can try to count this long period of consolidation we’ve had, but I don’t like to count structures such as this as too many counts seem equally reliable, and so I like to rely on other tools. So, first, we see what everyone sees: contraction in price, followed by a breakout that gold bugs the world over have been waiting for, for a year. Is it bullish?

Hmm, I dunno. I want to splash cold water on that thought for a strange reason: I’ve been around a little while, and it seems to me (at least in my lifetime) that the public is more interested in physical metals right now than I have ever seen in my lifetime (and it was quite a doozy after the GFC). And when I see average folks deeply passionate about an idea, my instinct is to run in the other direction.

And why would the public be so passionate? Well, there are narratives present today spread by popular and charismatic speakers who make a persuasive argument: the Fed is out of control and gold is your hedge. You can outsmart the reckless Fed by denominating your wealth out of the fiat that they are debasing as fast as they possibly can. And hell, not gonna lie, it sounds good.

Nevertheless, the popularity and broad acceptance of that story inclines me to anticipate a great disappointment, because the public is never really right about that sort of thing (or so says the contrarian embedded deep within me). And so, even if I were to acknowledge the bullish potential of this breakout, I would remain uninterested until there was a retest. The old adage is (as it should be): don’t buy the breakout, buy the retracement. So, if we retest the upper trend line, that would be a good entry, because that’s also now the stop.

GOLD

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Here’s a Thought for You on High Yield Debt and What I Think It’s Not Telling Us to Do Yet

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So, I look at lots of risk signals, and I love watching $JNK. Toward the top of the market, I was warning of caution partly because of how high yield debt was performing relative to equities (e.g., here, here). And that turned out to be prudent as we sort of fell apart. But as we continued to fall, and as we’ve entered this range, I’m not entirely concerned now because of many things I’ve discussed before (e,g, here, here). And that is despite junk bonds continuing to look like total trash here.

So here’s the thinking on this:

  • I have a lot of signals that look ok
  • Junk bonds look completely awful

What am I to do? Am I to assume that junk bonds are telling the truth and that everything else is misleading us? Or am I to conclude that the majority of evidence points to not such a bad risk off environment (no crash, no bear market—at least not yet)? And if the latter, then how do I explain junk bonds?

And so here is how I am going to try to explain that. You see, as a refresher—and to save you a ticker lookup—$JNK does look like total shit here:

JNK

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One Pattern to Watch on Natural Gas

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Not that natural gas, the other kind.

This is not high conviction on my part, but just a local observation that I believe is worth watching for the moment. It is building a head and shoulders pattern, the measured move of which would be quite the decline. Of course, we all know that these do not have to break down, so we need to watch the neckline, etc.

What would a move like this imply, giving up all of 2021 like that? Fed hikes cool commodities? Russia tensions ease? Or is it like lumber has been, wildly swinging this way and that? I am unsure. At any rate, that’s the pattern I see on it at the moment and the target such a pattern would generate, should this break down.

NATGAS

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A Look at $LCID

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Someone has asked me about $LCID, and I cannot find where the request was made, so I hope they see this. It has a very similar wave structure to $PLTR‘s (which you can see here). If I am right about these, then they each had a strong impulse wave up a year ago, and have been in a long primary wave 2 ever since. And that looks to have taken the form of a giant flat correction, composed of three intermediate (orange) waves. The last leg should be a 5-wave impulse, and it looks like we may be just about there. I have noted an appropriate fib level where we may expect to find support if we do, in fact, get one more splash lower.

LCID

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A Look at the Death Spiral that Is $RBLX

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$RBLX remains somewhat unclear to me. But I will note a few things here.

  1. The move first to all-time highs then immediately to all-time lows makes me believe that this may be a large expanded flat correction.
  2. The final leg of such a structure should be a 5-wave impulse, and that’s just what it looks like.
  3. There is bullish divergence present (and very sharp bullish divergence on the daily), which inclines me to think that the middle (strongest part) of the move is behind us.
  4. There is a fib relationship that may work here, but I am not certain of it, as I am not certain yet about the structure of what I have labelled as intermediate (orange) “A.”

And so, what we would like to know is how close this is to being done, if it’s going to be done and produce a new bullish structure. And I’m not sure. It is difficult for me to count the final 5th minor (green) wave of orange “C” as complete, as I do not yet see 5-waves there. So, it may go lower. But, perhaps the most momentous part of the move is behind us. There is good volume here, perhaps suggestive of capitulation.

We will need to see some big green, high-volume candles to gain any confidence that its decline is nearing an end.

RBLX

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