Local Structure As I See It on the S&P 500

Many folks will identify today’s structure on the cash session as a bear flag. Strictly speaking, it is that, but it’s a whole other matter as to whether it breaks down. I of course am skeptical here. When I have seen bear flags before (such as here, in November), no one wanted to believe it. People were very skeptical. I was trolled a lot for that. Here, we have the exact opposite: everyone is quite bearish here and everyone sees the flag.

It could break down, I assent. But, I continue to feel the need to resist the mob. I’ve been wrong to do that so far, but that’s not a good reason to switch tactics at this point, and in fact, doing so here may be a fatal miscalculation. I believe I misapprehended the bearishness here, at first. I now see that it’s been training. It’s been training people that they’re geniuses and master-class short sellers here. Millions of little Michael Burry’s out there will little hard ons right now. I think the bearishness is being rewarded for a reason. Everyone is very confident here, complacent. Complacency in either direction is a danger. I wish I could have foreseen that better beforehand (a consequence of my own complacency, as a matter of fact).

So, today’s grinding slop may be a feature of a Wyckoff pattern of accumulation known as “the river.” It’s the chop and drift up and to the right that gives us clues. Devil’s advocates would suggest that it could be distribution, and it could be, but here’s my thought on that: there are so many bears here, so many shorts in the market, that if they wanted to distribute, I think they easily could, but at much higher prices. Why haven’t we had a good short squeeze? That should be of great concern to the bears, in my opinion.

But, they’re not squeezing us up, and why? I’d like to imagine that they want the lower prices. And why would they want that? Hopefully to accumulate.

Thus, it is possible to count today as an impulse, despite its being so squashed. For most of the day, we chopped along in a triangle “4th wave” (red degree) and then a “b-wave” (also red degree). The drop into the close should be the suckers drop, where everyone piles in expecting the bear flag to break down (here’s what that looks like, if you want to see it).


From here—if I’m right—we should rally in a third minuette (orange) wave to either of the two orange boxes above us overnight. I am unsure which one. The lower box is the expected extension (the typical extension for a wave 3), but that sticks us right into the middle of the decline we just had, which might be weird. The higher box is the next fib extension, and reverses yesterday’s drop in full. Anyways, once up there, we should chop some more, in 4th waves of both subminuette (red) and then minuette (orange) degrees. Maybe we get pinned for OPEX up there. At some point we should squeeze a little bit (might even be next week) to finish off that little orange “5” of blue “1.”

Accumulations can take place in rising channels, and they’re lovely. Backed out, lots of folks will mistake them for bear flags (bigger than the one we have now). And the “spring” at the end (which should be our blue “2”) gives people the impression that the structure is failing, only to then embark on the most powerful advance of the move, in this case, the 3rd (blue) of the 3rd (green) waves. And it’s appropriate for most people to miss it. What people are expecting right now is a 3rd wave down, and I hope they are surprised by what’s to come and not me.

[Update]: One thing I want to add. The whole way down, all year, we’ve have no bear flags. Isn’t that weird. You know what we have had? Bullish wedges (e.g., see this). And they’ve often broken down. And now we finally get a bear flag. And so guess where I bet it goes?

Leave a Reply

Your email address will not be published. Required fields are marked *