A Quick Review

I have been open to a variety of possibilities, so I want to bring them together in a summary to help everyone have some clarity. I don’t want people to think we’re all wishy-washy. New information is provided to us each day by the market and I like to listen to that information as it emerges.

So:

  • The August rally was greater than expected and yet, even if the market was bullish, a retracement was a reasonable expectation and so I was glad to be bearish going into that top. That worked out well as we were then gifted with Jackson Hole.
  • I exited longs a little early, but we were met with a sharp rally that I participated in leading into the CPI print. At that point I was inclined to think Jackson Hole was a “1” down, the retracement a “2” up, and that we were entering a “3rd” wave down. And so I was again happy to be short into that, and we were then gifted by the large gap down.
  • Soon after that, though, we struggled to take out the early September lows, and it no longer looked like we were in a “3rd” wave down. We had a huge volume spike there, momentum was slowing, breadth diverging with price, sentiment screeched to multi-decade lows. All signs pointing to a bottoming process.
  • Because of all of that, I was inclined to be bullish going into the FOMC. That part I got wrong as we dropped again from there.
  • From there, what do we do? Reassess things, and in this slop we’ve been in, we still have that volume spike, which usually occurs near major lows in terms of time—if not also in price. In this case, it was still close enough in time, though not so close in price. But we still had it, breadth continued to diverge, sentiment worsened, and a broad consensus developed that we could crash.
  • Most of time time, the market does not give the majority what they want. I don’t make those rules. There are exceptions. May was an exception. Most analysts were looking lower and we went lower. Most analysts are looking lower here, too. Sometimes the exact opposite can happen at places like this. I see a lot of people insisting that we’re headed lower, and I’ve seen that shit blow up so many times that I don’t want to insist on anything.

But:

  • Given all of that, we’re pretty deeply oversold and we would normally expect some relief. Are we going to get it? I don’t know.
  • Given the extremely poor sentiment at the June low (multi-decade lows there, too—as we are here), it is very common for lows like those to hold. To not be breached. That was another reason why I was inclined to be bullish into FOMC, as another drop would get us maybe too close to the June low.
  • But here we are, having breached it. Congratulations bears. Your insisting worked out well.
  • We’ve arrived at several places in the last 200 points where we had excellent wave balance to support the structure off the all-time high as being complete. Despite that, we have not yet seen that monster 1-hr intraday reversal bar that usually tells us the big boys are back. So now we are faced with the grim possibility that we don’t have institutional support here. Yesterday was a great place for that. Sure, we rallied, but meh.

If we don’t have that institutional support, and we fall again, we may be looking at this:

SPX

And if we do head lower now, but we are about to have institutional support, we may hit that last excellent wave balance at 3621, like this:

SPX

This bullish outcome might be a little sketchy though. Institutions have already been presented with that price, and they didn’t bite. And so maybe they’re not interested here. It’s like, do they want to buy the June low or not? They were given that price once already and they seem to be absent (yesterday could have been a 200-point ripper, and was not). So maybe a little sketchy to assume they want that price because they seem to have just told us that they do not want that price.

Alright, so, my intention isn’t to be flip-floppy. My intention is to be aware and vigilant of the symptoms that coincide with major lows, all of which we have right here—except a rally. That’s the part we’re missing lol. And I don’t want to be caught on the wrong side of a 200-point one-day wonder rally if I can avoid that. But, despite those symptoms that occur at lows, we can still go lower too. We can get an even bigger volume spike ahead of us, for instance, and hell, maybe sentiment can reach multi-century lows, ha.

So, I’m leaning to the view right now that we’re probably going to fail one more time. These bottoming signs and symptoms are present here, but they can also be with us a few hundred points lower just as well. No institutional support, no bull case. I don’t think I see that support yet. I’m not insisting on this.

At any rate, I hope this post helps to bring together my evolving thinking from the last couple of months.


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