Sentiment is in the toilet. Damn near everyone is expecting us to be in a strong 3rd wave decline. I call bullshit. The sheer volume of people looking down is stupendous. It increases the probability that we’re going to do the exact opposite and enter a 3rd wave advance. A counter argument is that sentiment was horrible in May and we kept falling. But, that was then, this is now. That may have been leading into a contraction, this may be leading out of one. Also, I don’t think enough people were actually short back then, wanting price to confirm their “bearishness.” Well, we’ve now had some big declines, and that’s all the convincing people needed, and now they’re less afraid to short. My God, look at the PCR: at COVID levels right now (you can click on this to see the chart).
That’s why on this side of things, the bearish sentiment might be a great danger. Now people are confident. People then were bearish but not confident to put their money where their mouth was.
We have midterms coming up and I have a feeling they’re going to goose this bad boy. No way they have an election in the midst of a crash.
IF we rally, we do have an inverse on SPX. We may pop this bull wedge we’re in now, then retest from above into FOMC, then pump (upper green path). Or, we ram the wedge from within, pullback into FOMC, then pop the wedge after (lower green path). And the same on the inverse neckline heading to the election. Either we pop the inverse first, or ram it from beneath, but I highly suspect that we’ll have a year-end rally into next year.
We need to rally probably right from here to make this work. But, if we do, this is the plan. This doesn’t mean I think everything is going to their respective all-time highs. But lots of things will have big rallies, and for those, I think they’re in 3-stage declines (all the growth stuff that’s been destroyed). I think this first stage is over: huge declines in stuff like Palantir, etc. All of this decline for those has been an “A” wave, a huge multi-month relief rally will be the “B,” and then they’ll get destroyed again (and worse) in their “C” waves while the S&P enters a genuine decline.
If we don’t rally, that’s fine, I’ll know on Sunday night and will try to find some good targets. But everything looks lined up between the dollar, this pattern here, crypto, everything. We need to clean up sentiment. People bought the dot-com bear all the way down. People kept hoping all through the GFC crash that it would stop. By golly everyone here thinks we’re headed down, and now. I do think we are headed down, but I think we just have to get more folks bullish first. The market cannot fall if everyone is short (unless there is a panic/black swan forcing market makers to make anything at any price, but they’re not going to do that if they don’t have to).
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