400+ Point Move Is Coming

The market has had many opportunities to turn lower, but it’s hell bent on not making the move until the FOMC (it seems—disregard this if we get going somewhere before then).

But, because we haven’t moved yet, I want to discuss two scenarios that seem available to us.

In both cases, I expect the June low to be breached. I don’t think it’s the low—based on its poor structure. But, it’s entirely another matter as to whether we do it right from here or from a higher high. One reason to expect it here is the beautiful wave balance we’ve reached at 4000. And yet, there’s not a lot stopping us from having a ripper, either. How can we know in advance whether the Fed will or will not throw in some language that is interpreted dovishly (or at least used to justify a squeeze)? I suppose that we cannot.

We’ve been in a range (orange box) for more than an entire options cycle (poking once below it, now poking just above it). And that means we’re going to break the range and very powerfully when we do.

  1. If we’re stuck until FOMC, and are destined to go lower sooner rather than later (green path), I expect perhaps a little whipsaw (the beginning of the green path) followed by huge drop through the bottom of the range, followed by a retest of the range from beneath, then a move to the 250-week EMA (for starters, we’ll see what we see once we’re down there).
  2. If we’re stuck until FOMC, and are destined to go lower later rather than sooner (red path), I expect perhaps a little whipsaw (the beginning of the red path) followed by huge rally to the major trend line above us (where we will also be able to find wave balance—2:1 instead of 1:1), followed by a huge drop to new lows.

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My bias is to the downside sooner rather than later, but if too many people also have that same idea as well, it’s not going to work and the market will shove all that out of the way first and I think it will shove it a little harder than most people think it will (i.e., through the early June high, not simply to it).

Bear in mind, this idea is killed if we just start dropping like a stone sooner than the FOMC meeting. This is just me thinking ahead a bit. If Microsoft is a huge miss tonight and we get going now, we shouldn’t have to worry about this and will consider different ideas from there.


[UPDATE]: Let me add one thought. I said if we move before FOMC, this idea is killed, but I’m not sure if I like that upon a moment’s additional thought. So let’s say this instead. Even if we do drop before FOMC (e.g., Microsoft), I suppose a big FOMC reversal is still possible. So let’s say: if we do drop, but don’t decisively break 3946 (that “technical” bear market level), then there’s still a chance that we rocket back up out of the range. So, let’s keep this idea on the table even if we move a bit prior to FOMC.


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