Weekend Smorgasbord of Observations

I think I will simply walk through a pile of everything I see here.


1. No Matter How I Slice the S&P, I Think We Will Go Higher

There are 8,000 ways to examine the S&P here, but in general, I think they all still sort of point up next.

On the most bullish view, We have broken up out of a bullish wedge inside a bigger bull flag in a wave 1 & 2 in minor (green), then minute (blue), and then finally minuette (orange) degrees. On this count, we should be entering the most powerful central thrust of this impulse wave.

In support of this count, first at the lows, and then twice this week, the drops have felt awful, steep, sharp and abrupt. And that’s what “twos” feel like, generally. They are spooky, no one wants to buy them, and as a result they miss the “threes,” which is where the real money is made. So if we move 300-400 points next week in a real hurry, we might be doing something like this.

ES

On the still bullish but not as immediately bullish view, minute (blue) 2 is bigger, and we still have one more chop ahead before the explosive rally, like this:

ES

This isn’t as elegant because blue 2 is much bigger than green 2 and that might be a bit weird.

Another bullish alternative is that we’ve finished a 4, then a 1-2 and still have more upside ahead to complete the first minor (green) wave, like this:

ES

The mark against this one (in my book) is that this is the consensus bullish count among the few bulls out there. This count offers a nice additional deep entry at that green 2, and I think the market is more likely to deny participants that entry.

Like the last one, the blue 4 can become more complicated, making a triangle or something awful, that still needs more time, like this:

ES

Like the extra entry from the last one, this one has that defect, and another defect is that if this is a triangle 4th wave, it’s sort of much too big, as it’s now several times longer “in time” than the blue 2. A little weird.

Picking up on the triangle idea though, a more (eventually) bearish view is that we are in a “B-Wave” triangle, but that still yields us a big “C-wave” to come, like this:

ES

The disadvantage of this count is that, about as far as I can see, just about everyone believes this is a bear market rally and I remain mostly committed to the view that they will be wrong about that—because it is the majority opinion of average market participants.

And finally, even the most bearish thought (discussed here) needs a 5-wave move for the green “C,” and we don’t have that yet. And, it’s likely for us to need to go to the 50-61.8% retracement, and we’re not there, either:

ES

So, no matter how I slice it, bullish rallies, corrective rallies of all forms, I can’t believe this move is yet complete.

And hell, speaking of the possibility of a triangle here, don’t forget the triangle we just had in May. These two triangles (May and now) may be the shoulders of a very large head and shoulders pattern, the measured move of which could propel us right out of the bull flag altogether:

ES


2. It Appears That This Rally Is Being Sold By Retail

In the March rally (which i thought would fail, but then failed even more strongly than I expected) people had confidence that the worst was behind us. They were wrong about that. They bought more calls than puts on the way up.

Now though, on the other hand, in this rally, the opposite is true. People lack confidence that the worst is behind us. They are buying more puts than calls on the way up. I think they will also be wrong about this.

PCCE S&P

Equity options are more commonly used by the average retail speculator. On the other hand, index options are used more commonly by professionals. And we see a different picture here between the two rallies.

In March their behavior was fairly neutral, and they also sold the very top. Here, the hedges seem to be coming off. If this chart latches on in any way to the elusive “smart money,” then it appears they are adopting a different tone in this rally.

PCI S&P


3. The Dollar Should Help Us Any Minute

The dollar index (last discussed here) has decidedly lost its long-term trend line (green). It has even attempted to recapture it and has so far failed at that. An acceleration lower will be a boon for stocks, especially tech.

DXY


4. Some World Indices Are Breaking Out

While the US indices are still in downtrends, other markets are breaking out. They often lead US indices. I have already discussed the German $DAX (here) but it’s a clear breakout and has not faked out yet, a promising sign:

DAX

Likewise, Japan’s Nikkei ($NI225) has done the same:

NI225

It is difficult to interpret these breakouts bearishly here.


5. Some Stocks Are Doing Just What I Want Them to Do Here

I have already discussed $F, $GM & $X here, and I said it was important for them to find support. And each of them has.

Ford:

F

General Motors:

GM

US Steel (still fussing at its trend line, but has not given it up):

X

These are long-term, very bullish developments, as these are multi-decade breakouts and “twos” of very significant degrees.

Even $TSLA is doing about what it should be doing here.

I have it coming out of its cycle (yellow) 4. Those should challenge the channels constructed from their respective waves 1, 2 & 3. And that is just what it has been doing. Furthermore, the advance off its recent low looks impulsive, like a 1-2, and there is an inverse neckline to boot:

TSLA

That said, not all stocks are behaving precisely as I expected.

Amazon, which I count on my counts page, for instance, was last given this count:

AMZN

A nice leading diagonal, and I expected a strong rally to the orange box when I posted that.

And, as a matter of fact, we got exactly that:

AMZN

But despite that, do you see how this is now weird? We got exactly what looks like a “3rd wave” impulse to the upside, but we first took out the 5/11 low. And that is really weird. It means that could not have been a 1-2 back there. It’s one of the things that does make me wonder if it’s not a 1-2-3 in blue, but perhaps an A-B-C instead. It’s one of the thoughts behind the bearish count I discussed this morning. That, too, has us doing something similar.

That said, if the markets rally powerfully, I will just have to squeeze in another wave somewhere on Amazon, or perhaps it will give us an extra wave later on. We will have to see. But the look of the wave structure was just as I wanted to see (almost).

Similarly, $FDX (discussed here) was expected to rally from $211 into the $220s. And, in the end we did get that.

FDX

It, like Amazon, fell lower first though, but only briefly, and it, unlike Amazon, did not take out the low behind its leading diagonal. But, as a result of the whole developing wave structure, it may end up going even higher than first expected to finish its third wave. In the end, it’s behaving about like I’d like it to. And, it may even have an inverse of its own (noted with the red cups).

$ADBE, also (discussed here last) was expected to head to its orange box. And, it’s just about there:

ADBE

So, all in all, regarding many of the individual names I track, things are mostly looking about like I would like them to. I don’t see anything that bothers me yet. Crucially, in many of these cases, we need a full 5-wave pattern off their lows, and we only have 3 (and in Amazon’s case, sort of only 1). So, we do need followthrough, but if we get it, as I suspect we will because of the first section of this article, things will look especially good, I believe.

6. Volatility Looks Good Here

The $VIX looks fine here. What would be a concerning look—in a rally—is the S&P making higher highs while the $VIX does, too.

But it’s not.

Its broken down from its “lesser wedge,” and is creeping lower as the S&P has moved higher. This looks good.

VIX

And $VVIX is even better. It’s broken a long uptrend. Institutions feel compelled to hedge less here than they have in years? Why?

I’m totally guessing, but maybe they like the Fed’s normalization. Maybe the endless QE and zero interest rate policy had them conclude that such a model was unsustainable. And perhaps now that that’s reverting to normalcy is ultimately good for the markets. Maybe it’s really healthy. For a long time, folks argued that QE drained liquidity from the system. If that’s true, hell, maybe it’s going to come back to the system somehow now and maybe that’s good systemically.

We will have to see.

VVIX


At any rate, I may think of some other stuff this weekend, but this is what I’ve got for now. I generally like how things look right now.


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