A Count to Harm Everyone: Speculative Coffee Hour

Every now and then I take a moment to speculate on a wave structure that will throw as many red herrings as possible.

Before we begin, let’s review the primary count on the S&P 500.

The bearish view here has us topping out in a primary (pink) B-Wave, and if it’s right, we should descend in a primary (pink) C-Wave that retests the lows (and probably exceeds them):

ES

There are plenty of reasons to like this count:

  1. We never really saw a good capitulatory low ($ES-mini futures contracts volume spike, $VIX spike, Equity PCR spike, etc.)
  2. New bullish structures don’t usually start off with short squeezes like what we’ve seen with $AMC, etc.
  3. A lot of people are calling for the big melt up now and I am always suspicious of that—we should rally on disbelief, not participation

A problem with this count, though, is that it’s basically everyone’s alt. We start heading down, plenty of folks will try to short it to sub 4000 and I don’t like that either. If everyone is ready to flip on a moment’s notice, we’re not going to go down there, much in the same way as everyone having flipped bullish here means (I think) that we’re not going to head up much higher either.

And so, I’ve come up with a variation that can possibly solve this.

On this totally hypothetical layout, we’re in a B-Wave of a B-Wave. That is to say, let’s see what happens if we suppose we’re in intermediate (orange) B (a triangle) that is within primary (pink) B.

  • Let’s suppose we do fall from here (see the nice bearish divergence on the RSI?—that might work here)
  • As we do, everyone flips to the count above (that some big B was just put in)
  • But we don’t fall all that much (E’s often fall short, for instance), and we never take out the prior lows or even really reach them
  • Everyone expects a much lower low, but they get trapped as we have another stupid rally like the one we just had (to orange C of pink B)
  • As we’re doing that, everyone freaks out, realizes their mistake, and thinks that’s the melt-up (they mistake the green D-E as a 1-2, and then flip from expecting lower lows to expecting much higher highs)
  • But then we actually get the much bigger drop that everyone had been expecting for pink C
  • Everybody misses it, everybody gets ruined in the process, and that’s the low to buy and few actually get it

It solves another problem, too: if this is cycle (yellow) 2, it should be correcting a two year rally, and what we’ve seen so far just doesn’t seem like it’s taken enough time to do that.

ES

I know it’s wild and speculative and weird, but I like to keep weird stuff like this in mind especially when the market becomes binary: everyone has basically the same two ideas here and it’s good insurance to keep a third one at hand because consensus never wins.

I would take this count seriously on these conditions: if we do actually begin falling, and if that decline doesn’t look impulsive and we do not take out the prior two lows. If we’re entering a big pink C, it absolutely should be a big impulse, but if we’re going for green E of orange B instead, it will look like messy crap on the way down (like the drop from 3/3-3/8).


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