So Far So Good

In a continuation of the thought from Friday, let’s take a look.

It’s crucial for the bulls to see some continuation, at least if we want to count this as an unfolding impulse wave from these lows. We may count Friday’s rally as Green 1, with this morning’s whipsaw as a flat for Green 2. And from there, if we’re genuinely bullish, it would be ideal to see a gap here for the 3rd minuette (orange) of the 3rd minute (blue) of the 3rd minor (green) wave.

A modest trajectory might be this:

SPX

In which we gap up and start hemming and hawing up and to the right for all the three, fours and fives, eventually reaching that down trend line we broke from to complete a first full impulse wave of intermediate (orange) degree. Then maybe a big whipsaw maybe in and around FOMC for the “2,” followed by an even stronger rally.

This is all based on my present view that the volume spike I am terrified of behind us was meaningful (a lasting low being put in) and sentiment seeming too one-sided to me at this time. Believe it or not, if they actually have accumulated the market here, I won’t even be surprised if we get a huge whipsaw (hundred point swings) with a 100 bps hike, followed by an enormous rally, the thinking being: maybe the market would even interpret a hike like that as “peak hiking cycle” (which it probably would be). So even if the Fed surprises to the upside, I won’t be surprised to see that spark the next leg up, if that’s where we’re headed.

There are other less modest interpretations of the trajectory in the chart above (for instance gapping right above the orange trend line), but let’s first see if we’re even going to gap at all. If it’s a very big gap, we can go to the red bull wedge trend line even. But we’ll have to see. The modest one seems more reasonable for the moment.

I continue to be positioned long here. I am holding long calls and the bull put spreads I opened too early on Thursday (under the bullish wedge I thought would break up—4th chart here) are now ITM, but they have plenty of time remaining on them. Since ITM bull put spreads are synthetically the same as OTM bull call spreads, I simply added to them today as well. And that’s it, let’s see what happens.


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