There or Almost There

Brutal and soul crushing selloff.

I have been noting appropriate places where this may stop, levels at which I am looking for a reaction. Today’s selling mooshed through a lot of them. We’re not at a perfect place as of now, though there were better places earlier in the session (and even, for instance, at yesterday’s close—that was very good).

IF we keep rallying from here, there is one way I can count the entire structure off the all-time high as a major structure complete, by putting cycle (yellow) a at the green arrow, we came right to a good fib at the low today:

SPX

Unlike some other locations in this decline, this count is not without fault, or perhaps it has more faults than some of the others.

  1. It’s not my favorite place to put the yellow a
  2. It’s not the greatest fib relationship to have
  3. It bears no close fib relationship to the height of the GFC, which I would like to see here
  4. And I cannot seem to easily count yellow “c” where it is at now

I just don’t see many good fib relationships within this final decline as of where we stopped today for this to look like it’s likely to be “done.” It might be, and if we rally powerfully, I will lean that way.

Because of those defects, it is possible that we are after all going to pop under that June low. There are actually a few things that line up really well at 3620 (the June low is at 3636).

1. A better place to put yellow “a” is at the green arrow below, and using that, there is 1:1 wave equality at 3620

SPX

2. And right at that exact same spot is 1.318 times the height of the GFC:

SPX

3. We also have this 1.618 relationship internal to yellow “c,” (the wave of which I’m struggling to find balance for as it stands now):

SPX

4. And finally, within the pink C, we may have this 1:1 relationship between its legs (the orange A-B-C):

SPX

So lots of things line up just down there and not a whole lot lines up up here. So it is possible that we briefly take out the June low. Given how terrible sentiment was at the June low, it’s typical for lows like that to hold for months or years, and so that was my expectation, but I’m not seeing a lot where we’re at now, and so we might only just take out that prior low.

Speaking of which, sentiment here is now even much much worse (multi-decade lows) than it was at the June low and I have a growing conviction that we’re putting in perhaps even a multi-year low. What had started off as a hypothesis is crystalizing for me. The severity of this drop and people’s expectations here, and a look at the structure off the all-time highs as a whole, all look good to me as lending themselves to this whole year’s structure being a major correction in the stock market, and not a prelude to a much steeper decline. I think a huge, monster bear market is a low probability outcome at this time.

Given the high probability that the dollar and bond yields are both topping, I think I have enough in hand to conclude that we’re almost done. We may have one more drop. But I am expecting this to be over soon, and I expect us to enter a trending and bullish market for quite some time after this is over.


As for my playing this, I have taken it on the chin post FOMC. I was not expecting a drop of this severity. The VIX buy signal, the good wave balance I was able to find at different places, the sentiment, and the diverging breadth all led me to not expect a waterfall straight to the June lows like this. It’s quite a distance to have travelled. I have taken losses on long calls that I had, but have rolled them. They were so badly damaged though that it’s more like I have opened fresh positions (this is in case we rally straight from here). I do still have now deep ITM bull put spreads (those have more duration), and I think those are likely to survive.


Speaking of breadth, despite this bloodbath, it continues to have good divergence here, quite interesting given the drop:

BREADTH

So, it’s definitely not been fun looking for a low, but to my mind, it’s more important to know it’s a low, and not the opening crescendo of a crash, and I don’t have an appetite for selling into what I first suspected might be, and am now more convinced is, a major low. It seems more appropriate to me to look for long entries. I know a few of you disagree with me on this point, and so we’ll have to see how this turns out. But, it’s just the conclusion I have to draw here.

I caught a lot of the decline from the August high through much of Jackson Hole, and I caught much of the rally from that low, and I caught the CPI gap down, and so I will forgive myself for not catching the depth of this just right. That will especially be true if I’m right that a low of this significance is upon us.

Have a nice weekend.


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4 thoughts on “There or Almost There”

  1. Alright, I sort of agree on a short term basis. I opened long positions today & got some 7dte spy calls at today’s low. Let’s gooooooo 😂👌🚀🚀🚀

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