Some Observations on the S&P 500


Quick side note: we are waiting for the city to approve a permit so the electrical equipment can be replaced. I hope they do so soon. Furthermore, I have been using a sort of broken laptop (without a functional keyboard or trackpad) to generate the posts from the last week or so, and I’ve been carting a keyboard and mouse to a coffee shop in order to post some content for you guys. Unfortunately, the battery on that laptop has also failed today, and if you know anything about MacBook Pro Retinas, if no battery is detected, the CPU is throttled. It makes it completely unusable.

My second backup is a tiny 11″ MacBook Air, and I’m not sure what the screenshots of the charts will look like here, so my apologies if they’re not as big or clear. And thank you for your patience.


So, on to the markets. I posted two ideas this morning, with 4500 being the key, and that worked out well. We did, in fact, reject 4500 and sold like the Devil was hot on our tails the whole day.

That said, despite that strong selloff, we actually didn’t accomplish all that too much. We have yet to even take out the recent lows:

ES

For the time being, let’s look at the most obvious situation. That was clearly an impulse wave down today. If intermediate (orange) B is in, then perhaps this is minor (green) 1, and if so, I would expect a bounce at some point soon, perhaps something like this:

ES

However, there’s an important reason I don’t like this. Big, unrelenting drops like this encourage people to short the market en masse, and that makes me wary. I mean, after a drop like that, any bounce here is going to be sold by pretty much everyone. One way we can resolve this is by recognizing that intermediate (orange) A took two weeks, and so perhaps intermediate (orange) B needs more time.

If so, this could just have been minor (green) A & B of intermediate (orange) B, like this:

ES

Or even this if green B needs more time, too:

ES

(This count above is nice because it will try to trap anyone who wants to immediately fade the bounce we should get—they might get stuck down there at minute [blue] “c”.)

Note that in either of the two latter cases, we will be effectively rangebound for perhaps a week or two even. That would allow the market time to frustrate both sides, and so I’m going to be watching for this more than I will be expecting a huge drop (though I will have some positions with lots of duration on them just in case we do drop hard sooner rather than later).

TLDR; I think the selloff today was a bearish signal to us: but I also think it was a signal unmistakable to millions of people around the world, and I don’t think it’s going to be that easy. So, we may drop hard, but we may also range for a while grinding everyone up for a bit, too.


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