Some Observations on the S&P 500

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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