I want to focus first on some simple trend lines.
The orange trend line is of course what has governed our advance off the 6/16 low and comes from the June and July lows. Our closing under it yesterday inclined me to believe that my hypothetical triangle (here) had a good chance of playing out. It seemed to me that lots of folks expected a rally here, and it was terrific spot to have a big gap down instead. After watching the overnight fuckery, in which we started mashing right back over that line (here), I heard alarm bells ringing and decided to take the counter trade instead, because a failure to drop there (and thus for us to find support on that trend line instead of resistance) led me to believe we might actually see a rally instead, which we did.
I’m only glad we didn’t gap up sharply, as I was able to exit positions with some dignity and enter some longs at good prices.
The green trend line is the overhead resistance that has governed our decline. I note it here so you can know where it comes from when we zoom in in the next two charts.
IF the whole decline so far is a single structure now complete (discussed here), a big pink “A,” then we should be in the big pink “B.”
Roughly speaking, it may turn out to look something like this:
It should be a large, 3-wave advance (the orange A-B-C). I’ve slapped the CPI print on there, because hell, I dunno, maybe that will be the catalyst for the orange C. Unsure, but the timing looks pretty okay for now. I expect most people to expect us to head to the green trend line, at which point I think most people expect a failure. So, I like the big pink B idea, because it will involve a bigger rally than most would like to see, I think.
Let’s zoom in more to the very local price action.
Orange A may be a 5-wave impulse (the green count). I don’t yet think the advance is complete. I can count today’s move as a 1-4 in blue with good fibs, so I would expect a bit more at least to finish the blue count (within the green 3).
So: if this works, and this rally has some real legs, we may retake 4000 as we did the other day, and consolidate just over it again. If we do, anyone with recency bias may expect it to fail ahead of us since we just did that behind us. If too many people do think that (that we’ll fail like we just did on Friday), we may rally from that spot instead (for the green 5). If all this plays out, Orange A can go as high as it wants, and orange B as low as it wants, I can’t speculate yet where those might be. But, I will keep the CPI print on the chart, because it’s probably going to be a market mover.
An alternative is that the Orange “A” is a 3-wave move (they can be either 3- or 5-wave structures), and it would involve a repeat of the failure we just had on Friday. Don’t know yet. I will wait to see if the consolidation up there (if we get up there) looks anything like a “4” or not. Orange A as a 3-wave move would look like this roughly:
One more thing I will note. I have pointed out before that the Russell was perhaps conducting a retest of its entire down trend break out. When it had reached that trend line, I was inclined to be bullish, as being there could have sparked a big rally (discussed here). But instead, it failed miserably which inclined me to be cautious (discussed in the long weekend review here). Let’s look at it now.
We had a little bullish wedge down there, that strengthened, and has now broken out, and it’s done so with enough force to propel it right back into breakout territory. So, if it can maintain this, it could be very bullish, as the Russell tends to lead us out of lows.
What that could mean, very briefly, is one of two long-term possibilities because of fib relationships we are near.
The first looks like this:
At yesterday’s low, we struck a precise fib. If we rally and never look back, then the bull is back (at least for a bit, an idea I justified previously, here).
The second involves a similar idea, at a different fib, like this:
The difference is this one would move up (maybe in that big pink B), but then retrace only to 4027 (for a shallow pink C [of that yellow c]), before erupting in a good impulse wave heading to ATH.
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