A Technical I Can Point Out That Makes a Crash Here Very Unlikely

Let’s take a trip down absurdly long-term memory lane. I have a general idea of the conditions under which the market may actually “crash.” And, it seems to me that those conditions are not being met today.

Now, when I mean “crash,” I am referring to periods such as March of 2002, September of 2008, etc. What we might consider to be “3rd of 3rd” wave plunges.

To get those kinds of drops, we typically need to reject the 250-week EMA. That event can produce 25-40% plunges.

SPX

So, today:

  1. We haven’t even gotten to it yet (and there’s no guarantee that we even will)
  2. Thus we haven’t lost it
  3. And so we haven’t tried and failed to recapture it

If there’s any kind of massive plunge ahead of us, it’s not right ahead of us. Now, that’s not to say that we don’t have lower to go. For instance, reaching down to the potential bull wedge (second option here)—if we’re doing that—is sort of a mini-crash, as we would end up falling about 11% from the triangle that failed above us, all in a matter of days. But even if we do that, we’re still due for plenty of rallies and bounces before anything truly disgusting might happen.

The only other times in history where we’ve really crashed have been the COVID crash (we all know the unprecedented catalyst for that), the October of 1987 crash (both clearly visible above) and the 1929 crash (I’ve switched to line mode below because we lack the data to create “candles” prior to 1950):

SPX

In the case of those crashes, we need either a lockdown of all world economies (or other such catalyst), or a steep extension above the 250-week EMA. At the beginning of this year, we were well above the 250-week EMA so if we were going to crash like 1987 or 1929, we already would have done it. We’ve been grinding our way down and up for months and we don’t look anything like those periods.

So: I can’t rule out us going lower, but I can’t see us outright crashing from here without a lot more work being done first. Even if we do get to the 250-week EMA (and we may not), there will be a wrestling match there. And if we are going to crash, it’s going to be only after that match has been lost, in my opinion, justified by the examples we have throughout a long history.

Believe me, if I ever see us having lost the 250-week and struggling to recapture it, I will be warning loud and clear of the danger we face at a juncture like that.


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