Signs and Symptoms

There are a variety of things that continue to look good to me, despite the disgusting price action. I will present some of them below.

It is always difficult to know beforehand whether a market bottom will require capitulation or not, because oftentimes, the market “capitulation” comes prior to the lowest low in price. For instance, the COVID crash saw far less volume traded toward the end of it than it did during the beginning (as with the GFC as well for instance).

But on the other hand, there are other major corrections and bear markets that do see the greatest volume traded toward the end (for instance, the dot-com bust, Volmageddon, etc.).

And, with accumulations, it’s never clear whether there will be a deep “spring” that takes out prior lows, or only a shallow one that occurs at higher prices much closer to the markup phase. Every low can be different, and with so many folks insisting on lower prices, I’ve certainly been shy to join them (to say nothing of the fact that, for all I knew, the 5/20 low looked like it might have been good enough).

That said, we do have many symptoms of capitulation here. One, we had a very good e-mini contract volume spike (over three million contracts traded). We also have had a total breadth collapse with only 2% of stocks in the S&P 500 trading over their 20-day moving average, a feat not seen since the COVID low (and only 4.5% of the S&P trading over their 50-day MAs, also last seen at the COVID low—and there are other metrics as well that suggest a total washout). I think just about everyone has thrown in the towel.

Also, the wedge looks very good to me at the moment. It’s a well-defined structure, so long as it holds. And I do think it should, given the number of puts in the system.

Also, when the S&P is making higher highs and the $VIX is making higher lows, we often interpret that as a bearish signal. But since January, the S&P has been making lower lows while the $VIX has been making lower highs. Perhaps that is a bullish signal.

We have also had a terrific put-to-call ratio spike yesterday and today.

Some other things:


The interpretation of the recent price action as an accumulation continues to look promising:

ES

For this to continue to look good, we will want to see a rally that recaptures the support lines, ideally retest them from above, and then move to (and then through) the resistance lines above. Any breach of the late May/early June highs will be a “sign of strength.”


Bitcoin, which I at first had hoped would have a shallow “spring,” while Ethereum had a deep one, joined Ethereum in choosing violence. There is good volume here, and the wave count looks like it should complete soon.

There is some wave balance right here between cycle (yellow) “a” and “c,” so if it wants to complete, this is a good spot for it to do so. Both Bitcoin and Ethereum are trading in and around their 2018 peaks.

BTC


This has been a long and exhausting correction (now we can actually call it a bear market). I hope it has ended and I see reasons to justify that it has.

Sentiment is absolutely trashed here, and I do continue to expect most people to be surprised, which should mean we should head higher and not lower.


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