Bears Are Quickly Losing Their Moment of Opportunity

Bears can wait years—if not even sometimes decades—for bigger bear markets, and what have we managed so far this year? We dipped into the 20% range for a short while and Apple has almost recovered its all-time high. Okey-dokey.

I pointed out the importance of the 89-week SMA on Twitter last night, and let’s take a look at it more thoroughly here.

As we stand, we are over it now (intraday). The weekly close will be important, so if we don’t reject, surely that’s a checkmark for the bulls. Furthermore, we have now persisted over the 250-day EMA as well.

SPX

Let’s look at past bear markets.

In the dot-com bust, we never got above it, not even a poke above, as we have now. If we are replicating that fractal, I would expect us to be around the green arrow. But, we’re already stronger than that here today as we’re above the 250-day EMA and have at least poked the 89-week SMA:

SPX

And with the GFC, we did get a brief poke, but we ended that weekly candle deep in the red:

SPX

So far at least, our present market does not feel like either of these.


Let’s take a look at the Wyckoff accumulation hypothesis I have discussed before (e.g., here, here and here).

ES

So far at least, it’s not doing anything but a textbook “sign of strength” right now. If support here holds, what else can we say? Above these moving averages, above prior lines of resistance, where are the sellers? Are we the only ones trying to sell it?


So, I can’t deny that bulls have an opportunity here. Let’s look at two bullish counts.

The “standard” count would look like this. If we keep going up, this will become widely adopted. The assumption will be that we’re in a third wave now, soon to be finished, because there’s a clear 5 waves beginning from the green 2. They will look for consolidation (green 4), followed by another high. In other words, “plenty of time to make a decision” (in this Green 4). Even the bulls will be taking profits here.

SPX

This is a possible interpretation. However, I like surprises, too. And so I will also entertain this more bullish thought, just to see what might happen. On this “surprise even the bulls” count, the “technical” low—from a counting perspective—occurred on July 26th (a thought I discussed here). On this count, the big surprise would be that bears expect this to roll over (I still think that can happen) and bulls won’t be participating. But we would only just be entering the 3rd minor wave, taking everyone by surprise because no one would expect a rally of that magnitude right here.

SPX


No, I cannot explain why this would happen. We at least seem to have a Fed tightening into a recession, war in Europe, crises all around. But, if institutions have accumulated the market, what else can we do?

So, if sellers don’t show up real fast and in size, I think it’s possible that we can go up. And in case this is just a quick blip that gaps down on Monday or something like that, a bull trap of some kind, the strategy I am adopting for the time being is a simple strangle. If institutional sellers ever show, terrific. But if we’re entering a big markup, I can’t sit and stare at it dumbly.


[UPDATE]: There is a typo in the last chart. The target should say “Green 3 Target.”


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