A Macro Structure Speculation on $SPY

I want to believe the lows are in because of the supremely bearish sentiment. The bears are—in my opinion—dangerously overconfident.

The dark thought from earlier (here, here and here) has us going fairly low, and I would hate for that overconfidence to be so rewarded.

I have an alternative that may solve some of this.

Looking at the big picture, I am generally persuaded that the advance off the COVID crash low may not be an impulse wave. I have discussed some of the reasons why before, but, let’s grant that thought as an exercise.

If it’s a “B-Wave,” then COVID crash may have been an “A-Wave,” which means we should be in a “C-Wave” now, like this:

SPY

Now, a “C-Wave” should be a 5-wave structure. And if we’re in one, this latest rally especially has certainly caused a serious overlap and so we can rule out a regular impulse wave. But perhaps then we are in an “ending diagonal” (as depicted).

If so, we may rally a bit more than my dark thought suggests, before another spill that does not go as low as the full “C = A” extension suggested here. It’s possible that we squeeze the bears a bit more now, heading to the red trend line above, before falling again, but by not as much as they might want and only in a 3-wave move, which they may not expect (each leg of an ending diagonal is 3-waves):

SPY

So anyways, something like this is also possible. I would suppose, I will approach this as follows (personally): below that upper trend line, I will remain supremely cautious, if not outright bearish in the short-term. Above that, I will feel more confident about the bullish case.

The point is: I’ve become a little skeptical of this rally now, because even if we’ve had a 3rd wave, I don’t really like the price action over the holiday and this drop this morning. If we’re really in an impulse wave, in this stage of it, I would expect a lot of buoyancy here. That upward pressure feeling where it feels like there’s a lot of inflows, like the market doesn’t really want to dip. It lacks that feeling here, so I am cautious.


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