Let’s Review a Few Charts

If this is a bear market rally, it has certainly begun to defy credibility as one. It’s getting a bit big, maybe too big at this point, and I’ve taken notice and pointed out how we have found support on some key moving averages (e.g., here).

If it is a bear market rally, we will need to interpret it as some kind of 3-wave structure. Either like this:

SPX

or like this:

SPX

But in either case, we will want to see a fib relationship between the legs, and in both cases, we do not seem to have that here. This is a reason I have begun sounding the alarm over us not stopping at levels just beneath us (e.g., here, and here, etc.), expressing the importance of actually seeing a reversal at levels that now sit beneath us.

As for the first chart above, if we do try to count that as a 3-wave structure, we are decidedly in between fibs right now:

SPX

And if we use the second way of counting this as a 3-wave structure, it, too, is also soundly in between fibs as well:

SPX

Let’s zoom way in to the local structure from the last few days. From the 8/9 low, we’ve rallied, pulled back, and begun to rally again. I had suggested that the pullback might only be a 3-wave pullback (here), opening the door to higher prices, and we’ve seen that. Markets typically don’t top on 3-waves up, and in addition to that, even here at this scale, we seem to also be in between fibs (in this case right in between the 50 and 61.8% fibs):

SPX

We also have a well-defined channel so far, and so it’s conceivable—if this is a 3rd wave of some degree (discussed toward the end of this)—that we head up to the 1.272 or 1.318 extensions up there at the top of the channel in the chart above.

Or perhaps we even stop a little shy of that at the 61.8% retracement of the entire decline:

SPX

Regardless of what eventually happens, I don’t think this present move is complete, with us sitting in between fibs in so many places. We had a lot of fibs below us, and now we don’t. We had a strong rally on a Friday, into the close. And those can sometimes see followthrough on the Mondays that follow them, and so a gap up is possible here. And if we are in a 3rd wave up, that’s what we would expect to see here.

So, bears are on notice. I can’t find any bear markets in which we go shooting up off these moving averages and then go on to make new lows. But we do have some bear markets that can retrace to the 61.8% retracement before declining again.

It is a bit hard to see us going up a lot given what seems like the Fed’s position (tightening into a recession with QT still to come), and it would be a shame for bears to only get to see barely a 20% decline before the bull is already back, but unless sellers show up really yesterday, I’m not sure what else I can conclude for the time being.

We shall see how things look next week, and I hope you all have a nice weekend.


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