Get Me Out At Any Price

That was the kind of runaway panic into the close we all love to see, lol. 2.1 million /ES contracts contracts traded, a full tenth of that in one 15-minute candle near the close.

Could I have squeezed more blood from my long duration shorts? Yes. But, after the next two charts, you should be able to see why I’m not prepared to be greedy here yet.


The Bearish View

The bearish view has us having put in a major top at the 8/16 high in an ongoing bear market. This has been my preferred scenario. It has us breaking down from a head and shoulders topping pattern, and this next move should take us to 3300 for the pink C (though I think 3000 will be the eventual target, but we’ll discuss that if we get in that direction). That said, head and shoulders patterns almost always retest their necklines, and whether we do so right away or after a short while, it would still be my expectation, which is why I decided to close my long-term shorts because they were in profit, and I’ve never regretted taking profit when I had it. I believe there is a good chance that we will have some kind of bounce, even if we’re ultimately doomed.

SPX


The Bullish View

Now, when I say, “I’m intrigued by the bullish view,” note that that does not mean that I’m in love with it. But what it does mean is that instead of having a fairly strong preference for the bearish view, I’m fairly neutral and feel equally open to both outcomes for the time being. I’ve seen enough head and shoulders patterns destroy bears in my lifetime to know that I want to see the neckline retest fail, before I get too excited.

The bullish view I had been at least considering had us putting in a big 4 (you have already seen that here) of some degree. However, “fours” tend not to end quite so severely as this one has (if it has), but wave twos do. And interestingly, this decline was so big today, that the wave now feels distinct from the structures prior to it. If it were to stop here (and I don’t yet know that it will), it looks more like a big, 3-swing move now, rather than 5. And there happens to be an excellent fib relationship at the close.

If it is a 3-swing move, and if it was a panic low, there is a 2:1 relationship between the swings and I can justify this as a great, big “2.” For this to play out, we of course would need a big rally soon either from here or at another fib relationship below (there are a couple of other ways this can be counted). It is still also possible that this is a 4, but that won’t make much of a difference to us here just yet.

SPX

A caveat: one of the motivations for the bullish view was the Wyckoff accumulation hypothesis, which now looks not so good, as we’ve completely broken the levels. But one day does not a market make, and so I would like to give this more time to see if it has actually failed.

ES


A caveat for the bullish case is that strong selling into a close on a Friday can be accompanied by followthrough on the Monday that follows it. But it doesn’t always. A caveat for the bearish case is that bonds barely budged all day. They blew the whole thing off—I suspect—because Powell told us literally nothing that we didn’t already know. If bonds were unconcerned, perhaps that’s telling. We will need to wait and see.

So, if we’re bearish, I think I will have a chance to reenter. And if we’re bullish, a trade-able impulse wave should be coming, and there will some “2” in there that one can buy.


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