An Observation on the New York Composite

I would like to make an observation on the New York Composite ($NYA). Clearly, like so many instruments, we can identify a long range. And, as we all know, sideways trading ranges are either distribution or accumulation. I have given this a tentative Wyckoffian labelling (as distribution) so that we can identify some of its features, but we can’t be sure of its accumulation or distribution status until it moves more decisively out of the range one way or another.

That said, there is a feature that seems clear to me and I want to bring it to your attention, because it seems to me to be a very telling clue.

Just look at the price action as we move from left to right across the range.

Do you see how it goes from being less volatile to being more volatile? You can see that the violence of the moves (up and down) increases as time passes, yes?

And for Wyckoffians, that is often understood to be a symptom of the market being passed from strong hands to weak hands.

If that is true, it may mean that smart money has already left.

NYA

We won’t know this for sure without another breakdown, but if we see another sign of weakness, and a failed rally after that, this could be lights out.


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Let’s Talk Yield Curve, Historical Fractals, and More

On my data (TradingView), it looked like the yield curve almost inverted but did not, but I’ve now seen some screenshots from some Bloomberg terminals showing that it in fact did today. And the data on those will be better. And that introduces a whole new set of ideas for us.

As most of you will know, when the 10-year and 2-year treasury yields invert, it is among the very best forecasters of recessions. Also, as many of you know, an inversion tends to lead market tops, averaging about six months (a few times it’s been shorter, often much longer).

It is also true that everybody knows this.

So, a lot of people will accept this as an equity bullish signal, at least for the time being.

But there are a few things that concern me here.

  1. We had an inversion in August of 2019, and though we did have a pandemic lockdown-induced recession, we didn’t really have a recession, nor did we really have a bear market, either. As it turned out, the COVID crash was a mere correction, in the big scheme of things. While it was greater than a 20% decline, it was hardly long enough to give us that feeling of a bear market.
  2. Inversions often happen in groups: for instance, we inverted briefly in June of 1998, then the curve rallied, then it inverted again in January of 2000, and then the market topped in March of 2000, after which we had both a recession and a bear market.
  3. Notice that the ’98 inversion led the actual dot-com bust by over two years. As it turns out, the 2019 inversion may have led a looming recession by about the same amount of time.
  4. In other words, what I think no one will anticipate here, is that we may be much closer to a serious bearish decline, not realizing that the 2019 & 2022 inversions belong in the same family. I’m not saying this will happen: I’m suggesting that I am wide open to it here, and I will lay out a few reasons:
    • We do not know the extent to which the collapse of Russia’s economy will have on the world, but it may be more than we at first think; and their collapse is almost certain, in my opinion.
    • It seems to me that the Fed really may have to raise rates hard to fight inflation, and that may also send us into a deeper recession.
    • Everyone is looking at yield curve inversions from the last 20 years, but not many people are old enough to think to look back 40 years, and we’re all programmed through recency bias to expect the market to behave as it has in the last two decades, but an actual inflationary environment is something few of us have traded as adults, and we need to look back further.
    • As a result, expecting the Fed to ease before they’ve even begun to really tighten may be entirely wishful thinking.
    • They may have to raise rates a lot and for a long time, if they’re serious about inflation. I see very little that is equity bullish about that.

Furthermore, I am increasingly convinced that this rally is short covering and once it’s done, I am expecting it to fade. There seems to me to be way too many people suddenly calling for the melt up now just mere weeks after everyone was calling for a bear market (this is the result of an emotional market, driven in large part by retail traders, and that should mean that we are very near if not past a major top.

And the structure I think the S&P 500 is forming, is something I have seen before. And I don’t really like it. I hinted at it as a possibility here, and I have a better variation of it now after some more consideration.

ES

Read more “Let’s Talk Yield Curve, Historical Fractals, and More”


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


A Supremely Emotional Market

It’s disappointing to have been unable to call with perfection a rally of this magnitude. But this is a mirror image of what it would have taken to call for the decline from the all-time highs with perfection as well. I wasn’t bearish enough on the way down, but I don’t feel entirely too bad about that. I got some of each decline, but I also kept looking for reasonable structures to form, such as little bear flags and other signs that pointed lower, but didn’t get them, so I was cautious about directly calling for steeply lower prices, and instead, the selling was relentless.

To have been able to call the decline off the all-time high with perfection would have required one to expect the worst beginning to a calendar year in many, many decades (which is what it turned out to be). And that’s an aggressive thing to expect.

And now, likewise, to have called this rally with perfection would also have required an enormous amount of aggression: imagine expecting a 500-point rally without even any meaningful consolidation, let alone an actual pullback. That is super aggressive. It tells me that we remain in an extremely emotional market.

So, for the time being, it’s hard for me to commit strongly to either the bullish or bearish positions. I would rather wait for a calmer structure to develop. I’m not thrilled about trying to play in rocket ships up or down (unless I can anticipate them). I can still see either bull or bear outcomes here.

The bearish view would like to see sellers show up very soon, and would involve tonight’s action as having cleared out any stops above the February highs:

ES

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Where Is Supply?

We have now had two cash sessions that ended with panic buying into their closes that were not reversed by the open, which is very uncommon. It’s hard to interpret that. Obviously an enormous amount of risk is being accepted by the market here and there are no sellers in sight.

We’ve now even breached the February highs without even a second thought (arrows). Literally no sellers of note at any price. This may still be primarily a short covering rally, but for all I know, it’s nowhere near being done. After breaching these highs without any effort and without any morning reversals, punishing those who panic buy into the closes, I sort of have to assume that we’re in a powerful markup.

Until we see some actual selling show up, I see little reason for us not to head to all-time highs at this point.

ES


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


A Count to Harm Everyone: Speculative Coffee Hour

Every now and then I take a moment to speculate on a wave structure that will throw as many red herrings as possible.

Before we begin, let’s review the primary count on the S&P 500.

The bearish view here has us topping out in a primary (pink) B-Wave, and if it’s right, we should descend in a primary (pink) C-Wave that retests the lows (and probably exceeds them):

ES

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Let’s Discuss a Few Technicals

I have been somewhat agnostic here, recognizing that we would enter some period of sideways chop, which we did, though it’s been a little more up and sideways rather than simply sideways. That said, between the two counts expressed here, I am beginning to favor the bearish one more than the bullish one, though they both remain possible.

I have a feeling that this rally is simply a short covering rally (in part because of the moves we’re seeing in the meme stocks and much of the heavily shorted tech stocks—which were under-performers during the move off the all-time highs). If that’s so, we still need to see some supply enter the market.

That said, I would like to review a few things.

Previously, I discussed the channel on the US indices that I expected to serve as some resistance. While it did temporarily slow the Nasdaq 100 and the S&P 500 down a little bit, they have managed to get back into their channels, but the Dow and the Russell’s respective technicals remain unchanged:

The Dow futures have come back to retest the channel yet again but have not recaptured it:

YM

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


I Have Found a Use for My Previously Private Twitter Feed

When I created this website, I needed a way for folks who had contributed to be able to access protected content here, and so I settled on the use of a private Twitter feed in which I could store a password for them to use.

However, as the Patreon model does all of this far more conveniently, I haven’t had a use for that feed, but I’ve thought of something that some folks might like to have.

When I publish content here, it gets blasted to both my public and once-private feeds on Twitter. But on my public feed, in addition to the market-related tweets, I also publish a lot of trash lol—anything from terrible jokes to things I find newsworthy. And so following me there in order to see when new content is published here punishes people by forcing them to sift through all of my garbage lol.

So, here’s what I’ve done: I’ve made that once-private feed a second public feed now. And the only things that get posted there are links to the articles I publish here.

And so: if any of you would like to be push notified of new content I publish here, there are now two better choices: one may use the e-mail form in the left sidebar of this website, and one may now also seek notifications on the now trading-only Twitter feed, using this Twitter feature:

Twitter Notify

In either case, should members want to be told when I’ve published new content here (without also being subjected to my crude sense of humor and whatever I find newsworthy at a given moment), this is an alternative they may use.


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


The Greatest Strangle Trade in Over a Year Is Almost at Hand

I have already examined the bearish interpretation, but until we see some supply, it’s important to also examine the bullish possibility. I don’t find it as likely, but sometimes when I find no good reason for a hypothetical move, that’s sometimes the move that happens because no one else saw good reasons for it, either.

Further hampering me here is my poor grasp of sentiment. Normally, I have a decent sense of whether folks are extremely bullish or bearish at turns like these, and it’s something we can try to fade, but here, I see a complete mixture: I see about as many people (and analysts) being bullish as I see being bearish.

So, let’s review both interpretations.


The Bearish Interpretation

On this interpretation, we are enduring a large, 3-wave correction of cycle degree, composed of primary (pink) A, B and C waves. On this interpretation, we are nearing the end of pink B, and will soon commence on a significant drop for primary C. What is needed for pink B to be complete is a 3-wave move, and if pink A finished on the 3/8 low, then we have them.

ES


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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


We May Have Entered a Meat Grinder

As many of you know, my expectation is for this rally to fail. The general intermediate term projection looks roughly like this:

ES

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


My Present Thoughts on the S&P 500

The technical observations I made last night are partly still in tact. Partly, because we’ve now broken the parallel rails to the upside, but the pattern may still well turn out to be merely corrective. I have left my drawings on the chart, and here’s what it looks like now:

SPY

Read more “My Present Thoughts on the S&P 500”


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.