Let’s look at both the bullish and bearish cases in detail. At present, I can still make a decent case for either one.
There are some common features to both charts, so I will start by highlighting them, to draw your attention to them:
- Note the wide rising (transparent) channel: that comes from the COVID crash low through the February 24th low
- Note the more narrow falling (transparent) channel: that is the down trend we are presently in, parallel rails from the all-time high, January 24th low and the mid-February high
- Note the bullish wedge (orange structure)
- In the bullish case, the rise off the 2/24 low was a leading diagonal, minor (green) “1,” and the decline since then the “2”
- If this count is right, we will rally up and out of the bullish wedge, and the down trend channel, preferably with a powerful breakout, retest and launch
- There should be lots of good news, a dovish Fed and little reluctance on the way up; the impulse waves going up should be clear and motive, not choppy and hesitant
- In the bearish case, the rise off the 2/24 low was a leading diagonal, minor (green) “A-Wave,” and the decline since then a triangle “B-Wave”
- If this count is right, we should rally up and (perhaps) out of the bullish wedge, and I suspect not the down trend channel. That is to say: I believe more people are watching the bullish wedge than are watching the channel. Poking above the wedge will incline folks to believe we are having a break out, but by not clearing the down trend channel, it could all become a big bull trap
- I would expect, in this scenario, for the impulse wave (green “C”) going up that it could be somewhat choppy and hesitant (as it would be an impulse wave within a correction still)
Of course I cannot really guess which of these two is more likely. It seems to depend on factors I am unable to know:
- Are the events in Europe actually going to push us into contraction?
- Will those events escalate?
- Will the Fed actually be dovish or hawkish?
- Are they going to fight prices or the economy?
- Are they really trapped here?
And I can’t really know answers to these. If we do get up to the bullish wedge trend line, and if we get up and out of the down trend line as well, I would suppose the coast is clear. But if we falter and start declining, I would suppose that we’re in trouble. But I can’t say much from here other than to try to anticipate what I would do if we do get there.
[UPDATE]: In an even more basic sense, I suppose what I envision here is a competition between two patterns.
On the one hand, this bullish wedge is present:
And on the other, we may also produce a bear flag:
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