I have already examined the bearish interpretation, but until we see some supply, it’s important to also examine the bullish possibility. I don’t find it as likely, but sometimes when I find no good reason for a hypothetical move, that’s sometimes the move that happens because no one else saw good reasons for it, either.
Further hampering me here is my poor grasp of sentiment. Normally, I have a decent sense of whether folks are extremely bullish or bearish at turns like these, and it’s something we can try to fade, but here, I see a complete mixture: I see about as many people (and analysts) being bullish as I see being bearish.
So, let’s review both interpretations.
The Bearish Interpretation
On this interpretation, we are enduring a large, 3-wave correction of cycle degree, composed of primary (pink) A, B and C waves. On this interpretation, we are nearing the end of pink B, and will soon commence on a significant drop for primary C. What is needed for pink B to be complete is a 3-wave move, and if pink A finished on the 3/8 low, then we have them.
The Bullish Interpretation
However, any time we have a contraction in price like this, it is always possible for it to break up as well. What if instead of being a little bear wedge we’re in now, it turns out to be a triangle instead? This could mean that pink A belongs on the 3/15 low, and we are only now halfway through pink B. I find interpretations like this frustrating and absurd, even almost angering, because I want the hawkish Fed to mean something.
But, the market doesn’t care about that. And if too many people have the same idea here (“Hey, let’s fade this rally about here”), then it’s just going to do the opposite of what many of us might expect.
This interpretation still involves us being in a large, 3-wave correction of cycle degree, but it just means we may have to go higher first before we can go lower and that when we do go lower, we won’t go as low as in the other count.
It’s possible that not enough people enjoyed shorting on the way down and they want to make sure not to miss it this time because they regret missing out on it last time. And if they all think that time is now, we’re going to keep squeezing and squeezing until they regret that, too, and that’s when we’re finally going to drop.
In sum, unless some new information comes to me soon, I cannot easily predict with high certainty which of these two will happen, though it will no doubt seem obvious to us all in hindsight. And in either case, the move should be very strong, making this a terrific setup for some kind of strangle.
Logic says we should turn lower sooner rather than later, but the illogical is often logical when it comes to the market so be aware that the bullish is view may be just as likely to happen.
If I had a better sense of sentiment here, I could do something more than a coin toss, but I can’t right now.
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