A Detailed Look at Both the Bullish and Bearish Alternatives for the S&P 500

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:

  1. Note the wide rising (transparent) channel: that comes from the COVID crash low through the February 24th low
  2. 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
  3. Note the bullish wedge (orange structure)

Bullish Case:

  1. 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”
  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
  3. 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

ES


Bearish Case:

  1. 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”
  2. 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
  3. 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)

ES


Of course I cannot really guess which of these two is more likely. It seems to depend on factors I am unable to know:

  1. Are the events in Europe actually going to push us into contraction?
  2. Will those events escalate?
  3. Will the Fed actually be dovish or hawkish?
  4. Are they going to fight prices or the economy?
  5. 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:

ES

And on the other, we may also produce a bear flag:

ES


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