I expect this to be a bear market rally that can fail soon. Especially as we are near the 250-day EMA. And if we are replicating the dot-com fractal—which looks good here so far—we should reject that EMA. I am concerned that we haven’t yet. The longer we consolidate under it, the more energy we may be building for a move through it. And if we do go through it, we’re “technically” in a long-term uptrend and we’re certainly not replicating the dot-com fractal and we need to take notice.
Fortunately, I have a backup roadmap planned for such an emergency that I’ve been grieving over for a couple of days (I hate that it could happen given the Fed’s position). But, I said this a lot earlier in the year: historically, markets top after a hiking cycle begins, not before. So this would match that, I guess. I dropped that because the carnage in the market became too great and we couldn’t catch a bid to save our lives for weeks.
But, the market feels stiff here, and the bears certainly outnumber the bulls without any doubt. I can only think of maybe 2 analysts who expect new all-time highs. This would certainly make us contrarians.
So, let’s at least have a plan, yah?
IF we get a big green daily candle that punches the 250-day EMA (not a wick through it, but a full-body candle or close to one), like that one drawn and pointed to by the green arrow below) run for the hills, lol. I would probably be open to much higher prices if that happens. We had a good bear flag at the low, nice, obvious structure, no selling. We had this big June gap, terrific target, obvious target, we met it, no selling. We now have this prior consolidation (from early June), also a terrific target, still no selling yet. What’s the next target? That green trend line above us. And guess what? If we keep going up, it’s because we all have the same stupid targets and everybody is shorting this rally all the way up, and that’s not a rally that’s going to fail until literally everyone is destroyed in the process and I don’t want to be one of them. So: I would actually look for a breakout of the trend line, a rally to just over 4600 (it’s based on fibs), consolidation (everyone shorting it again), then a punch to a new all-time high just over 4800 (also based on some fibs).
I know it’s disgusting. But let’s not stand in front of a bid. Hell, maybe there’s news coming, who knows. Remember the insane “vaccine week” in November 2020? Good lord. The institutions all knew.
Let’s also review the big accumulation hypothesis I discussed earlier but lost faith in at the lows because of the slow, corrective-looking pattern. I discussed this Wyckoff hypothesis here and here, for instance.
Despite now being much larger, and taking longer than I expected, it doesn’t look bad at the moment. And notice that the hypothetical “Sign of Strength” (SOS) happens to occur right where we’re at, right at this damn 250-day EMA. So, we punch that EMA and that will coincide with a Wyckoff sign of strength by breaching these resistance lines.
So, I hate bringing this up because I don’t want to cast confusion upon everyone. But, the strength of this rally took me by surprise and I don’t want to stay surprised.
I think I have apprehended why I was surprised, and that is my discovery of the similarities of this structure we’re in with the dot-com bear market. But, that all now hinges on the 250-day EMA, which we soundly rejected in 2001 at this point in its fractal. And so, the logic is, if we don’t reject that EMA here, then we’re not in the dot-com fractal and we should have a plan and this is the plan.
4 thoughts on “And Let Us Discuss A Backup Plan”
The news, Dereck, that might be coming may be an end in sight for the Ukrainian War…I keep reading nuggets about the Ukraine going to China to help end the war. This would give a huge boost to the market. Just a thought.
I would think that would be high on the list of probabilities.