So, still plenty of possibilities, but there are few things that I do find worth discussing.
- Hard panic selling like that into the close is often reversed. I believe that is retail panicking in advance of the CPI print tomorrow.
- Junk bonds fell even more in the session (but rallied slightly into the close while the S&P puked, which can be good). Whereas here, where $JNK was at the 61.8% retracement, it ended the day exactly at the 78.6% retracement. That is still possible for a “2,” but it’s a bit less convincing than it would have been at 61.8%. Deep twos are certainly possible, but a bullish market should prove itself with the presence of buyers. Such a wonderful rally two weeks ago and it’s given almost all of it right back again.
- I find it notable that Bitcoin was unfazed. I take that as a good sign so far.
- As for reexamining the structure on the S&P, a “2” is still possible (perhaps even probable), but it sort of doesn’t look as much like a 2 (it could be, but it lacks the “classic” look). In trying to capture what had been a reasonable triangle in a new structure (post dump), I see this:
The cash session did make a new high at the arrow (futures did not) and so we can get 5 waves up. But the pattern following that is not a triangle. It does have five touches, like a triangle does, but because it’s falling and expanding that way, it is more likely to be a falling diagonal. And that is actually an impulse wave. And so this all becomes very strange, if that is what it is (I don’t know that yet; I am merely exploring possibilities here with you).
We would end up having an impulse wave up, followed by an impulse wave down. And that’s weird. It seems to me that we are left with two choices (if these are two back-to-back impulse waves).
The first is the supremely bearish alternative. It would imply that the 5 waves up we’ve had is a “C” leg completing a “2” of a higher degree (orange). This is unfortunate because I would have expected a much bigger rally for a “2.” And this thing we’ve been stuck in until today has been a leading diagonal “1” (green) like this:
This is a very dark view. It would imply that a rally from here for minor (green) 2 would fail, and we could plunge over a thousand points in a 3rd of a 3rd taking us perhaps as low as 300 on cash $SPY. I am very reluctant to believe this given the near-universal sentiment that we’re in a big bear market. I really have a hard time believing that the majority has got it right.
The other alternative is that the 5-waves from the low was an “A,” this new “leading diagonal” another “a” of a lower degree, and we’re now in some kind of 3-wave “B” (in green), which will be followed by some green C:
This would still be some kind of corrective rally (counter-trend) and would imply that we will probably take out the May low. But, it doesn’t imply a crash per se, and it would give the market a lot more time to bleed off some of this overwhelming bearishness. And the green “C” could potentially go extremely high (I’ve simply stuck it on there where I have as a placeholder).
At any rate, I’m disappointed that we haven’t rallied. A majority of people have been expecting this to fail and I would hate for it to fail so quickly.
This still could be a “2.” They are typically sharp and scary as they finish. But, for that to work, we’re going to need to rally in an obvious 3rd wave for me to believe it. We need to embark on a 400-point rally soon for me to keep hoping for that.
If May was a major, major low, perhaps an initial freak out after a first rally can be accepted. Let’s look at one example.
Coming out of the COVID low, we had an initial rally, then we consolidated for days in a contracting structure. And we puked from it, taking us to the 38.2-50% retracement of the advance (the box). Then it was off to the races:
For us, here, it is a bit similar. We have had an initial rally, then we’ve consolidated for days in a contracting structure. And we puked from it, taking us to the 38.2-50% retracement of the advance (the box):
So, I would like to see no further weakness here. Granted, with COVID, we had infinite QE—I know, but then as here, everyone expected these rallies to fail. And one of them certainly did not.