Without A Sharp Selloff, Bullish Short-Term Potential Is Possible

I’m sorry but it’s important to be nimble here. I have already discussed the two scenarios that can play out on the S&P here, and let’s look at the Russell as well.

I wish I didn’t have to open the door to a pivot, but we need prices to move down and that should be happening soon, if it’s going to happen. For instance, I did not like the bearish flag forming on the Russell, and I knew that we were approaching channel resistance (green arrow). And that was good to do, as it did, in fact, serve as resistance and we sold off from just that spot.

However, now what? Well, the rejection has not been very severe so far (note the last two times we rejected the upper green rail in the chart). This has been much more reluctant. And note that we have (so far) found support on the pre-COVID high (red arrow).

So, if that holds, what can I conclude? I must conclude that the bearish potential in all this bearish structure I’ve been seeing was potential only. So, if we don’t break down, it probably means there’s a large short on the market, and we need a further rally to work that off.

In the last chart from this morning, I noted 4200 as the target for the S&P (if we fail to break down). Several things line up there. It’s the 61.8% retracement of the decline from the 3/29 high, and the 50% retracement of the decline from the all-time high. It also coincides with a retest of the 250-day EMA (from beneath).

I wish I didn’t have to open the door to the upside like this just after I’ve been pointing out all the ways we could drop, but if there’s too many people eager to short here, we’re just not going to get it and we may have to wait to get it. There’s nothing I can do about it. I was expecting a decent gap down this morning and there aren’t enough new sellers. That can change, but until it does, we may go up.

If we do, the S&P will make an intelligible structure, a falling, expanding 5-wave diagonal, like this:

I’m only pointing this out so that no gets taken too much by surprise. We can still certainly fall, but we need to get going.