Despite the strong selloff, the fundamental picture (on my interpretation) remains intact.
There remains a good fib relationship between legs of this correction, and despite the blood in the streets, we remain above the 2/24 low. It is frustrating to me that we’ve come this close to what I continue to see as the consensus view (that we’re headed to 3800-4000), but perhaps that will only serve to encourage those who are making that call.
It is concerning to me, when backed out a bit like this, to see that COVID trend line retested with a subsequent failure like this. That part does not look good.
That said, with the $VIX this high and sentiment so much in the toilet, I don’t have a lot of confidence that this can go lower from here. Frankly, today felt like a total washout to me, like total capitulation. It would have been better for me to have anticipated the need for it, but I remain more concerned about the market chasing away from us in the other direction. I feel it would be absurd to insist on lower prices here when 38 out of the 42 analysts I watch are also saying that now. I think that trade is about to blow up in their faces in a big way.
We have lost the smaller inverse head and shoulders pattern today, as we made lower lows below those of 4/26, but the larger inverse remains intact and I continue to lean to the view that it will play out, taking us well above 5000.
Apple, despite falling below the ideal 50-61.8% retracement (identified here), remains within its long-term channel and has just made a higher low.
We had good volume today (over half a million ES-mini contracts traded in the final hour alone), the $VIX is nice and high, the equity put-to-call ratio is extremely elevated, all signs pointing to a low. Crypto has had no liquidation breaks, and lots and lots of stocks have made higher lows between yesterday and today. This was mostly Amazon that did this to us.
The FOMC meeting is next week and will of course be quite important. My suspicion is that they will be dovish. I believe they will suggest that peak inflation is behind us (which I think is actually the case) and that they will have room to remain somewhat accommodative.
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