The Market May Do Something Cruel

I have already discussed this morning how we may still be in a nest of ones and twos.

That much remains true even now (on the cash session):

SPX

So long as we remain below the high at the 200-day SMA, this can be either a nested 1-2 (blue) then 1-2 (orange), or all one big 1-2 in blue even (even if we take out yesterday’s high, that blue 2 in the chart above could just be a of 2, etc.).

However, on futures, this contraction in price may also be a triangle B-wave, like this:

ES

If we do get a plunge but only get equal legs between Green A and Green C, it can also just be a 3-wave pullback. The cruel part is that if we do get a deep plunge, that is also what we would expect to see in a 3rd wave down.

So, isn’t that a pain in the ass? I wish we hadn’t formed this contraction in price, because it adds a lot of ambiguity. It would have made my job a lot easier if we had simply plunged instead.

So, fundamentals certainly support the more bearish count, but I also suspect damn near everyone here is looking at least for a deep pullback, too. So, that might support the “one more rally” count.

If we do get a plunge, and get to only equal legs, I will take some of my long puts off and add calls so that I have a more balanced position that will accommodate either a deeper drop or a rally from that point.

If we start moving to 4339 (discussed here already) instead, I will do nothing will sit tight and see if we get there and see if that becomes resistance.


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