Let’s Look at a Bunch of Things

As most of you already know, I expected a bounce, and so far, we’re getting just that. Then today, I expressed openness toward the idea that instead of only reaching the 3/3 high (which could eventually produce a “flat topped triangle”), we could also go higher to form “parallel rails.” One reason for that is the distance I think Apple may need to travel: were it to reach its bull wedge structure, the S&P 500 would need more space, too.

But the structure today has me even questioning the parallel rails thought now. And the reason is: the S&P 500 is moving more that Apple is. And if Apple needs to get to the bullish wedge, the S&P is probably not going to be confined by even parallel rails here.

So, let’s examine some things. The parallel rail look (fake bull wedge breakout look) looks like this, below. The problem for this is that intermediate (orange) “C” should be a 5-wave move, and while that would have been okay before the FOMC drop, it’s not so great now. To be frank, this looks more like a 1-2.

Zoomed in a bit on $SPY cash, we can count this as 5-waves up with a 50% retracement, followed by a powerful move up again. The trouble is, in order to stay within parallel rails, the green 3 is going to have be short, given how big the green 1 has been. That’s unusual but not impossible.

If we do end up getting a more standard-sized 3 here, we would expect that to go to the orange box (at a minimum) for the green 3, before going even higher still for the green 5. And that is going to break our rails.

So, I think it’s important to watch the parallel rails here, the “bear flag,” but also important for us to remain open to better than expected outcomes, namely: that instead of the correction continuing, that it is also possible that it has already finished below us. That then leads us to the outright bullish count:

So the question will be all about how powerful this rally turns out to be. And with Apple, which I discussed earlier, it makes sense for it, after reaching the 250-day EMA (importance of which was discussed here) for the first time since the COVID crash, to have a nice, big rally. Not some two-day affair, either. And furthermore, it’s also formed a decent looking inverse down here, the measured move of which will actually take it completely out of its bull wedge:

And so, if it needs a lot of room to run, it makes sense for the S&P 500 to get up and go for a bit, too.

Two last things I want to bring up.

I’ve discussed this before (if you haven’t read that, I recommend it): the $JNK/$TLT ratio has been range bound all year, neither signaling risk on or risk off. All bonds have been crushed, and not just high yield ones. What I would expect if we were entering dark times is for a flight from low quality bonds to high quality bonds. And today, we’re seeing the opposite: we poked up out of this range, which means: there’s a move from high quality bonds to low quality. That seems to me to be a risk on signal.

Now, one day does not build a trend, and we will need to see if this breakout sticks, but if it does, it’s telling us something.

And finally, let’s look at the $BPSPX. While I cannot go through all of the basics behind point-and-figure charts (you can read some basics here), they are used for detecting long-term trends in all sorts of instruments. Ultra-long-term investors can use them, as they remove almost all of the noise of “time,” and focus solely on broad directional bias.

What this ticker itself does is (it’s sort of “meta”): it does a PnF analysis on the percent of stocks in the S&P 500 which have bullish PnF chart. So, it’s weird, but also helpful. All damned year its “status” has relentlessly been only either: “Bear Confirmed” or “Bear Correction.” Meaning that the percent of stocks in the S&P 500 with a bullish PnF chart, has continually been expected to keep going down. But not today: it just switched to “Bull Confirmed” (look for the green status label on the chart). Which means: we may now expect the percent of stocks in the S&P 500 with a bullish PnF chart to go up now. And so that heralds a lot of participation.

So, if we need reasons to support the bullish count, junk bonds outperforming the basket of US treasuries held in $TLT (pristine, safe, longer-dated stuff) and the $BPSPX flip are perhaps two very good reasons.

Now, I’m not going to get very excited until we have 4500 as support, but it’s worth noting these things so we can keep an open mind about more upside than we might expect after basically only selling off all year so far.