A Hypothetical Count to Keep in Mind

I want to explore an idea that is—at this stage—hypothetical only. It is motivated by a few things:

  1. I don’t like the structure (so far) off this ~4000 high
  2. There is much uncertainty just ahead of us
  3. I have growing apprehensions about sentiment here

1. Now, it my general view that the rally off the June 17th low developed a structure that inclines me to believe that it will eventually be taken out. I have been looking for this rally to eventually fail. And so far, we have a local top in, and have seen an initial decline. That said, much as I did not like the rally off that low (which inclined me to believe it will eventually be taken out), I also now do not entirely like this initial decline, either, making me wonder if this high will also now eventually be taken out. That was one motivation behind this post. The problem with the decline is that we really would like it to kick off with some enthusiasm, and it has not yet done so (it still might). But, the count from yesterday as a nest of ones twos does not really work any longer. Today was no third of third by any way that I could tell.

That is fine. If we are in a corrective move down, it doesn’t also mean that it’s over the moment it started. It can go lower, and I suspect that it might. We should get a fairly powerful reaction to 4000, I would expect. And closing back inside the range discussed here is a good first step in that direction.

2. I have already discussed in the other post, but with tech earnings, GDP, FOMC, jobs and inflation all this week, it can get volatile and I can’t easily predict which direction it will go. But given the rangebound conditions we have endured, I expect it to be a big move.

3. I have growing fears about the number of analysts expecting this rally to fail sooner ranter than later. It was better a week or so ago, but over about the last week, many people are coming around to the view that we’re going to take out the June low sooner rather than later and I don’t like that.

And so, given all of that, I looked for a level that could give us an equally lovely set of wave balance, and I found one that could work (gestured toward earlier) and I will discuss it in a bit more detail here.


A lot happens at about 4360. It’s the 61.8% retracement of the entire decline from the all-time high. It coincides with a trend line strike, and may even involve a brief breach of that, setting the stage for a huge bull trap (if we get there—this is all just hypothetical for now). There is wave balance between the waves of both yellow and pink degrees, if we go a bit lower first in the short term. Also, if this count is true, and we’re not even in yellow c or close to it today, it means yellow a and yellow b will both have been huge in terms of time, and we may expect a huge yellow c as well. If we do get that, and have a huge, time-consuming drawdown, there are three long-term fibs that all meet together at the exact same spot, right square in the center of the broadening pattern we were in from 2017-2020, also a point of control in terms of volume. I have noted those fib relationships using the green text in the chart. That would almost certainly involve a recessionary bear market.

SPX

Futures are up right now on Google and Microsoft, but that by no means has to last until the open. Zooming in a bit, if it does last, we may open high, but then fail again this week, and head below 3800, making a 3-wave corrective decline to complete this Orange C of pink B of the hypothetical count.

SPX

And if the tech pump doesn’t hold until the open, I can also count the decline this way, giving us a more immediate move lower to the same level:

SPX

I don’t think this decline is over yet. We should get a nice, big reaction to 4000. I would expect bigger than what we’ve seen so far.


So this is hypothetical. It is still possible for us to just keep dropping, too. After all, we already have lovely wave balance at 4000. And so I can certainly justify a move below the June low as it stands. But if everyone is already expecting that now, we may not get that. So let’s keep this in mind. If we do complete this drop by heading lower this week, but stop somewhere below with good wave balance—such as 3767—and begin to rally too powerfully, it’s possible that we go up much more than most might expect, only for that to fail in a very dramatic way to much, much lower prices probably into next year.


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