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