In this post, I will discuss long-term and intermediate-term count possibilities for $XLF. Where the financials go, we go, and it’s important to look at the possibilities here.
First, the bird’s-eye view. From the GFC, we can count a very well-organized impulse wave up for cycle (yellow) 1. The “megaphone” concluding in the COVID crash is a good candidate for an expanded flat for cycle (yellow) 2. If so, we should be in cycle (yellow) 3. If the advance off the COVID low is thus primary (pink) 1, and the decline off that high primary (pink) 2, we should be embarking on the most powerful 3rd primary of 3rd cycle degree wave.
I want you to think about that for a moment. Think about just how bearish people are here. And imagine being that bearish just prior to most powerful central wave of a huge, macro structure. It makes perfect sense to me, frankly.
Coming out of the COVID low, I felt justified in being bearish because we had that 5-wave yellow count, and for all we knew at the time, we could have had a much larger correction—another leg or even two down—to complete such a structure. Once the markets went back above the pre-COVID high, I had to reevaluate everything and I got a much better sense of where I think we’re at, long-term, in this structure. I publicly capitulated in January of 2021, but I had already mostly made up my mind due to the powerful “vaccine week” rally in November of 2020. It signaled to me that institutions were conducting a major markup, and they typically do that with years in mind. Not “a” year.
Zoomed way in from the COVID low—for the geeks—we can count a 5-wave advance (the orange one), with the first being a leading, expanding diagonal, and the fifth being an ending diagonal. That can give us primary (pink) 1. The decline off the high looks to have a triangle in there (orange “B”) and since then, I detect an ending diagonal for orange “C.” And we’re right at a good fib:
So, this can really get going soon.
What is the alternative?
The bears will want to count COVID as a “4.” And the rally from those lows as a “5” only just now completing a 5-wave advance off the GFC lows. If that’s the case, we would expect a probably many-months decline for cycle (yellow) 2 taking us to the expected range of the orange box, bull also possibly much lower:
This would involve some kind of financial catastrophe, and given the financial conditions here, I don’t see it. The banks really are quite well-capitalized. If anything, they have too much money. We will have to see. If we begin a powerful rally, that will lend much credibility to the bullish view, market-wide.
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