Let’s Look at a Bearish Alternative

Now, some of the reasons I have had no appetite for the short side have been: 1) The supremely bearish sentiment—historical in fact—and 2) The lack of any strong bear market rallies.

However, now, we have had a decent rally and sentiment has vastly improved as a result. It would take an act of deliberate self-unawareness for me to not see that the very conditions that I felt were lacking for a bearish move have now made their appearance.

If my bullish view is correct, and the bullish structures such as this, this and this all stretch their legs and meet those measured moves, then so be it, we should move up sharply and without sluggishness.

However, if we don’t, we should have a back up plan, and I’ll present it here. At the end of April, we had that nice descending triangle that failed. they can only be in “B-Waves” or “4th Waves.” If it’s a 4 (as I’ve labelled it in the bearish alternative below), then the move afterwards should be the 5th wave of some larger wave (I’ve labelled that as intermediate [orange] 1). And from that low, we would expect a 3-wave move for orange “2.” It’s possible that it’s an expanded flat (the green A-B-C) and if so, we should see a 5-wave move for the green “C.” On this count, we still should take out the holiday high on 5/30 in order to get a 5-wave structure here. And, the expected retracement for a “2” is the orange box.

Now, lots and lots of folks have been insisting that we’re in a bear market. And I don’t like to insist. And in fact, the number of people insisting on that has inclined me to think that we’re not. But, anything is possible. And perhaps fewer folks are insisting on that after this decent rally. So, I will carry this as an alt-count, just in case. The big “bull flag” we’re in is a descending channel. We need to get up and out of that to ensure that we’re not going to head lower. If this rally continues powerfully and we get that breakout, good. However, so long as we remain under all the prior highs made all year, things like this are on the table.

I don’t know what probability to place on this count, but I would certainly be concerned if we can’t get above that orange box. It is, after all, typical for wave “twos” to retrace back to the prior “fours” of a lesser degree and if we fail up there, then that’s exactly what this could be.

looking at an array of things, lots of signals are perhaps still mixed. The breadth thrust in this rally has been terrific. But, on the other hand, some of the bullish counts I am tracking on individual names are perhaps suspect. It’s not 100% clear to me that we’re out of the woods, nor is it clear to me that we’re doomed. Frankly, I’m not sure either way. But, I do like that we got a rally, sorely needed and called for. Now that I’ve gotten that, I think it is prudent to remain in a mode of assessment.

We have non-farm payrolls coming out this morning. That can be a market mover. So, let’s see what happens.