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

This rally is strong and the breadth is terrific. It very well could be the real thing. If we simply keep going up, there’s not much I will be able to say about it until more structure reveals itself: if we are in a new impulse wave to the upside, we would be in the 3rd wave of that now, and we will have long and boring fours and fives to finish as it arcs its way up.

That said, I remain concerned that we seem to never have had a real capitulatory low. It seems to me that everyone is waiting for a good melt up and spent the whole correction this year patiently waiting to buy the dip. And while sentiment certainly did get somewhat bearish on the way down, it never seemed to me to get all that bearish. And I am convinced that we’re not going to get a melt up while everyone is expecting it.

This sort of makes me feel like this is a trap. I could be completely wrong about that.

However, one thing I want to point out is this. If we were doing the bear flag thing above we probably should have already turned lower. Parallel rails are drawn for a reason. Had we done that, we could assume that the flag was correcting the local decline from which it came (the decline from mid February on—i.e., what composed “the pole” of the flag).

But now, having broken above that structure means this rally might be correcting the entire decline. And so if this rally does fail, it’s actually far more bearish because it will produce lower targets than the one above. As it stands today, we have corrected 50-61.8% of the entire 2022 decline, and so this sort of makes me think that the whole decline all year is just “one structure” and this rally is a “second structure.” And if we view it that way, then we’ve either had one big pink “A” down or a big pink “1,” and this rally is a big pink “B” or a “2,” like this:

ES

And if that is the case, then we may end up going a hell of lot lower than 4000. We would either have a big drop for big pink “C,” or that same drop for a big pink “3,” followed by a consolidation and a further low after that (the 4 and 5)

And believe it or not, the psychology behind all of this seems perfect to me. While we were around 4100, a lot of people were waiting to buy 4000. And it was denied to them. And so the faithful melt-up believers have had to FOMO into a rising market. That’s poor positioning. And if we do turn lower, they will have to scramble to get out, only to then be given the entry they had wanted once we get to 4000.

And that makes me think that that level will then fail, as we then move to either 3850 or even the orange box below us. So, I like it, but until we see some supply show up, it just a thought.

There are a couple of other reasons I sort of like this look on the S&P.

Bitcoin just doesn’t seem to me to be bullish yet, hardly confirming this rally in equities. If we’re truly risk on here, this should be bucking like a horse. And instead, it still looks to me to be in a big triangle of its own:

BTC

If that count is right, we might expect much lower prices to come.

And furthermore, the Russell continues to have an equally “flat” structure forming here, going more sideways than up, and until it actually goes up, there remains a good chance of it failing as well (an idea I discussed previously here).

RTY

So, in sum, the strength of this rally makes me believe we may be in a much larger structure than I have been expecting. And that would sort of make sense: much of the way down, I was caught off guard by the depth of the selloffs, and despite the fact that I expected a rally here, it’s now turned out to bigger than I expected as well. If everything is bigger and bigger and bigger than expectations, maybe we have something big coming to the downside, too, where 4000 turns out to be sold hard, rather than bought.

Breadth is fantastic here, and that happens in only two places: coming out of market bottoms, but also relief rallies, too. So it’s dangerous to assume the breadth is necessarily bullish until we get a bigger picture. I’d like to see more things like Bitcoin invalidating its head and shoulder pattern, etc.


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2 thoughts on “My Present Thoughts on the S&P 500”

  1. Hi Dereck, appreciate your perspective. We spent a lot of time around 4418 seemed like accumulation. The spring up from fake breakdown (feb24) is a strong pattern, we have also broken-out of the downtrend…do these points matter…

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