Let’s Examine the Alternate with Greater Care

I want to preface this by saying, no, I don’t think this is the most probable course. But, I haven’t worked out what the bullish setup could look like in detail, and I need to do that work beforehand so that I’m not grasping and guessing if things actually do get bullish. And so I’m doing that work now, and I will share it. And this way, if I start talking like a lunatic while the lights go off in Germany, you’ll at least know where I am coming from because you will have seen the charts beforehand.

So far (so far—this can change quickly), the once hypothetical—now somewhat more probable—Wyckoff accumulation that I have been entertaining is still looking textbook:

ES

We’ve seen the sign of strength, we’re enduring retests of these prior lines of resistance. If we do strengthen from here, we’re likely in a markup. And I ain’t gonna fool around with that, fundamentals be damned. We move down soon and lose these levels, that’s fine, too. But we need to have something in mind in case we don’t lose them.

Now, earlier, I already showed one bullish count, that this is a big, orange 4:

SPX

This can work, and I hashed it together before the close so you guys could see something, but upon some greater reflection, it has a defect. The orange 2 is “simple.” We went down, then up for a lower high, then down for a lower low. What that usually means is that 4 will be complex. Typically 4 will be a flat if 2 is simple. Problem is, we’ve had an impulse wave down, and a flat cannot begin with an impulse wave down. Flats are 3-3-5 structures. They end with an impulse, they don’t begin with one.

The freaky solution to this is that we could have just finished orange 4. It would mean that that stupid extension in the rally that took us to the 200-day SMA was actually part of this correction. And back in early August when I was looking for the top of the structure, we sort of actually did get it in there already.

This count would look like this:

SPX

For the orange 4 “flat,” 3 waves for green A, 3 waves for green B, then 5 waves for green C (of that big orange 4).

Do I think this is super probable? No, not really. Is it possible? Sure it is.

So, if we do end up moving up impulsively, and especially if we take out the 8/16 high, I will drag this back out. I would like to see a surprise in the market. And this would do it. The market is plenty bearish (I don’t even think it got very bullish up at the high—a little, yes, but not too much). So if we fall sharply, that won’t be surprising. And if we rally, most folks will expect a 3-swing 4 to come, as in the second chart above. And so if we just rip almost straight to all-time highs from here, that’s probably the least expected move.

Again, I don’t think this is probable. But we’re one Russian ceasefire (or some other white swan) from having sentiment go crazy and I would like to have a plan of action worked out in advance, and this is it.


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