Public Post: Downside Momentum Not Strong Enough

I want blood and tears just as much as the next man. But as much as things look like they stand squarely in the bears’ corner, there are at least a few things that may not.

We all want this to be a big third wave down where we get to gape at $SPX yawning its way into the abyss while people cry out in anguish and fear (or is that just me?).

But let’s look at two things. I think we’re moving lower too slowly. If we had kept up the pace from Tuesday, that would have been more to my liking for that kind of decline. While falling that fast, anyone who missed it would say, “Damn, but I’ll short the retracement or a consolidation.” It would have been better had we kept going, just to the point where folks would have said, “Shit, ermagerd, I’m missing it,” piled in at the lows, then boom, we get the retracement. But by slowing down and congesting, that’s just too easy.

And that slowing momentum has now left us with this:


This by no means needs to break up. It’s a setup, not a guarantee. But the loss of momentum in price is exactly the feature that forms the parameters of a bullish wedge like this. If these lines were parallel, or even broadening, that would show either equal or accelerating momentum. This contraction in price is just the opposite: it’s declining momentum. This can change in a heartbeat. Gapping down and that lower line is poof.

But what if it doesn’t?

Also, breadth is on the mend:


These divergences may signal that this decline is ending just as soon as it looked like it was getting started.

Neither of these are any guarantees. Bullish wedges can break down and divergences can continue to diverge.

I’m not making any predictions here. I’m only saying that the carnage may not be quite as bad as it seems. And the bulls might have more fight left in them than they might look to have.

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