With important earnings still ahead of us and the FOMC still ahead of us, there are still a variety of things that may happen here.
In all of the cases, given the sharpness of the rally, and my assessment of sentiment and other instruments I look at, I am leaning to the view that this is a “2,” and that once it’s complete, it will fail and we should head to new lows—and perhaps dramatically so.
The options available to us are:
- We’ve topped now and we can fail, that’s one possibility. We have come to the 50-day SMA (the light blue moving average below), and that’s a place the rally can stop.
- We can consolidate up here still in the orange box until FOMC if they intend to take time to distribute.
- We can rally a little higher to 3918 where there is wave balance between the Green A and Green C (one way to count the advance). That is a 1:1 relationship there.
- We can also go even higher to the 61.8% retracement of the whole decline from the August high up there at 4006. There is wave balance up there as well if we use the Red A-B-C count, which is another way to count it (in that case, Red C = 1.618 x Red A right at the 61.8% retrace at 4006).
So, in sum: I think we’re most likely in a 2. It can have stopped, or it can go a little longer, and I have no great way given the big earnings and the FOMC to favor one alternative over another. I will hold my SPY puts of duration, and, as discussed in the Discord earlier, I have taken some Apple calls as a hedge (and I will take a few SPY calls as well because the IV on Apple is pumped to the gills right now). If we go up again, I will use the proceeds from those to roll my SPY puts out a little more in time.
But, I lean to the view that the rally will fail, and it’s now just a matter of finding where and when that will happen, and these are the possibilities I see at present. My goal is to remain patient, and to try to stay positioned for some of these alternatives as best I can.
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