A Review of What I Think Can Happen Here

First, a sketch of the overall count. It looks good, we have this nice 1:1 wave balance at these lows, and it’s a corrective pattern. It helps to explain the breadth thrusts we had in August, etc., and the violation of all the moving averages when I was still considering a greater bear market possibility.

Those events don’t really line up well with something like “repeating the dot-com bust fractal,” which I thought was a real possibility in June and July, before that particularly big rally in August. It’s hard to find those in historical bear markets (despite “bear market rallies” being renowned for their ferocity).

This pattern as a whole helps to explain that, as it’s a giant consolidation and we need not concern ourselves with those peculiarities we have seen.

So, it looks like this, and we came with 2 points of hitting that ideal fib yesterday:

SPX

The question now is: are we actually ready to rip? And I am unsure.


On the one hand, it’s a good rally on above average volume. If the low is in, I would accept the bullish wedge breakout that I identified this morning as genuine, and we would count things like this:

SPX

Perhaps we have completed a first impulse wave up. Or perhaps we’re still in it.


But on the other hand, there’s a couple of things that bug me. For one, this sort of felt like short covering to me. Like, if institutions step in at a low, the candles feel huge and relentless. Despite this moving up a lot, it felt a little odd to me, maybe lacking the force we like to see with institutional support. The other thing is this: where is the bear trap? You mean to tell me that we’re on the verge of crashing, the Bank of England steps in and saves the bond markets unannounced overnight, and the bears who shorted the close yesterday got to get off at a better price this morning? Come the fuck on. Do I look stupid? (I am sometimes, btw.).

While big gap downs off of highs are usually not great signs (those get filled more often sooner than later), big gap ups from major lows usually are good signs and are more common. So everyone looking for a crash last night gets to step off unscathed having read about the same intervention that we all read. Fishy. (Obviously not all of them chose to step off, as today was a lot of squeeze).

So, maybe something else is still going on here.

Looking at the broadening formation I also noted this morning can give us a more bearish short-term outlook. We poked through the upper rail, but closed below it, so perhaps its a failed breakout. And at the same time we did that, we rejected the July low from beneath. So maybe there is resistance there. And the structure does fit the parameters of an expanded flat (a-b-c in red) if this was orange 4:

SPX

The ideal extension for the “c” leg of an expanded flat is 1.618 that of “a,” and the “c” leg should look like an impulse wave and today did. So, it’s possible that we head back down again. Ideally, we should hit that 1:1 long-term fib at 3621.

The other thing is also this: when institutions do step in, it’s best that they do that intraday, giving us a strong reversal in the markets. We don’t have that right now, so maybe we will. If CBs are pivoting, they’ll of course notice and take the market back into their control. So, maybe we drop again and scare everyone, hit that fib, get the strong intraday reversal, that sort of thing.

If we go lower than that fib, and I will need another count and things are probably more bearish.

I took advantage of today’s rally to offload some of the calls that I accumulated at lows (as I averaged down), pushed the rest of them to further dates and added a few more puts to those I took earlier today. So, I’m hoping that I can accommodate any outcome here.


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