Let’s Briefly Discuss the Conditions for a Crash: Just as a Precaution, Because Some of Them Are Present Here

This is not to fear-monger. But, here is what we will see just ahead of us, if we are being set up for a crash. There are conditions under which crashes are more common to be had, and I see two of them here, and want to draw your attention to them so that you are prepared—just in case—well in advance.

You all already know what I am expecting here. I expect us to head to the 4000 area:

We have a good larger count that supports this, we have an excellent bear wedge here locally, too. So what’s the problem? I have never seen such a bearish consensus among technical analysts. It is one of the reasons I have not often aggressively called for lower prices this year, suggesting instead that drops are possible, but not really committing myself to them (as I am here). In the long run, avoiding crowded trades is very beneficial.

But this has now become among the most crowded trades I have seen in years. Literally almost everyone is expecting a move to ~4000. It’s amazing to me. And hell, it still looks to me like we’re going to get there. And that leads me to suspect that something is coming that few of us expect, and so let’s speculate about what that could be so that we are not caught entirely by surprise.

1. Since everyone now expects a move to 4000, it could mean that we’re just not going to get it. We are, after all, in a larger bullish wedge (the red structure). And if we do pop right up out of this, maybe we just keep going.
2. Or, the scarier part: maybe we’re not going to stop at 4000.

Let’s suppose we do get to ~4000. There are probably millions of traders the world over, who are about to buy that level. So, if someone very big out there needs untold billions of dollars of exit liquidity, that’s exactly where they’re going to find it.

Now I absolutely believe we will bounce down there (assuming of course we do get there). But we will need to watch the structure of the bounce with care. We will be beneath this new channel (that’s the purple thing), and if the rally is of poor quality and if it does not count well as an impulse wave, we will need to be extremely careful because it’s possible for bullish wedges to fail. I am unsure ahead of time how I would count such a crashy drop, but it would mean that’s we’ve been building a series of ones and two to the downside, and that we’re entering a 3rd of a 3rd down.

It’s important to remember that crashes occur from oversold conditions, not overbought. And we will be in oversold conditions if we do get down there. And if everybody thinks that it’s the dip we need to buy, then perhaps it will not be. Now, for all I know, there could be terrible news while we’re down there, or perhaps actually a lot of people are expecting this structure to fail (for instance, a ton of people do believe we’re in a bear market). And if all that is the case, then perhaps not as many people are expecting to go long down there permanently. Perhaps everyone tries to fade the bounce, and if that’s true, then up, up, we should go from there.