Well, quite the intraday reversal. Almost 2.5% from the intraday low to the close. That is just the kind of thing I was very glad to see here. Volume was good (high) with hammer candles forming in hundreds of places. I hope we see some powerful followthrough.
We came painfully close to the $SPY gap from April 2021:
There are a lot of people that want that to close, and so my preference is for it to remain open. Bulls want to get long down there (or, many expect even lower, too), and it is best for a bullish market for them to be denied that anticipated entry. If everyone is expecting that to fill before going long, and then they get it, I will become suspicious.
That is a lot of buying liquidity, and we need to ask ourselves, “Why would ‘they’ want that liquidity?” If they take it down there, it’s because they want long liquidity, which if they want it, they want it to offset their selling. And so I hope we don’t see that.
That’s sort of an ideal setup because a lot of people see that channel, too. Many will have interpreted the exit as a breakdown and as their signal to close longs. However, I believe it will turn out to be a false breakdown. If the structure is a huge re-accumulation, they often end with a “spring,” and it’s a big shove to push out longs before the markup phase. A false breakdown of the channel qualifies as just such a spring. If I’m right, we should be in the markup phase now.
If we see some followthrough from here, I believe almost literally everybody will expect this rally to fail, and I believe it will hardly give any pullbacks. That is what I will be looking for from here for the time being.
I dearly wish I had been able to say, “$SPY will go to $405.02 on Monday, May the 2nd, and reverse there,” but as this is a correction, there are so many fib possibilities that could work, and it wasn’t possible for me know which one would.
All I know right now is that sentiment is unlike anything most us have ever seen: the bullish percent is as low as it often is before multi-year markups, and the bearish percent is now as high as it was at the very tippy-bottom the GFC. Under these conditions, it is virtually impossible for me to seek lower prices, even in the short term.
It has been painful bottom fishing like this, but if I am right that this is a low of cycle, and possibly even of supercycle degree, the hypothesis should be vindicated shortly.
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