An Important Bearish Alt Count

Let me review the primary bearish count.

That count has us in a 5th wave down, with primary (pink) 4 already complete. And in addition to that, there is also a good chance that intermediate (orange) 1 may also be complete, and that we are in orange 2 now:

SPX

You can review some local details of this idea here. The target for this count is 3400.

The count looks good, but I do have one reservation. This is a very crowded trade. The incomplete 5-wave structure (in pink) is frankly really obvious, and so it’s easy for everyone to adopt it and we all have.

That does not mean that we’re wrong to be bearish, but sometimes it’s a matter more of time rather than price. And if you’re wrong enough in terms of time, it can be just as bad as if you were wrong about the price. And so, I have developed an equally good-looking alternative that is unique to my site. And I like to have those when I can. Not one person out there is saying we’re still in Pink 4. And if we are, here is what that would look like:

SPX

A large, time-consuming bearish wedge/ascending triangle. Wave fours can and often do take a very long time to unfold. And they can often challenge the primary channel non-trivially. This isn’t that much different from the first count above, with the exception that the rally we may see can now go higher than most expect (retesting the high from Wednesday—as opposed to simply retracing part of it). And if it does that, it will cast confusion into the hearts of traders, which I would rather see. Sudden deep skepticism about their calls for another drop. Then we do get the drop, but then it immediately retraces for the orange 2 (when we all would be expecting a much deeper drop in a 3rd).

And then after that confusion, then the hammer really drops for the big third, with far fewer people on board. And this structure will allow them to fuck with us all the way through OPEX, and will make a large, redistribution pattern, perhaps like this:

SPX

And what would this look like to most people? It would look like a breakout of the channel, followed by a successful retest. Then we squeeze into OPEX Friday, with the third wave gap down commencing over the weekend. It’s a terrific trap. So I kind of like this better than my primary bearish count. I’ve called it an alt, but I think I like it enough that I will keep this on my screen for the time being. This would mean that everyone is right to be bearish, but they will throw themselves at the short side for two weeks with complete impotence, watching all the puts they get between here and OPEX go up in smoke, feeling desperate and discouraged right there at the end, angry and unwilling to try again for yet another week. And then we get it. I like it. Psychologically, I like it. It’s cruel. We just can’t have too many people on the trip and this will shake a lot of them out.

And if this does happen, given the size of the re-distribution, the eventual target is lower (3150 instead of 3400—they’re not going to take this much time to redistribute only to then mark us down a little, it should be followed by a larger markdown—and there is a very good fib at 3150).

That said, if we at any time see a lot of strength, I will reach for the bullish case (here). But I want to see more of the structure unfold first and it would help of course to see what happens FOMC this week, etc. But given the Fed’s language this week, I’m not too hopeful. I think they might actually have to break something first.


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