$SPX Evening Update: We May Still Need to Look Up

It’s possible that a top is in. But, FOMC uncertainty and all that, it’s also possible that we will extend further.

A few reasons. For starters, we’re in a channel (green parallel rails), and “wave fours” in a channel frequently challenge those channels. We did so in August, and it’s possible that we’re doing that now (see the red text and arrows):


I don’t like this all that well as a minute (blue) 4 (of Green C of Orange 2), because minute (blue) 1 looks weird, but we’re sort of behaving like we’ve been in an impulse wave, so I’m open to it and I will give it the benefit of the doubt if we don’t sell off more very soon.

Also, I sort of feel like we’ve come this far towards the 200-day SMA and that we may as well go all the way. Maybe a little strange to get this far without going ahead and hitting it. Past bear markets often reach the 200-day repeatedly. No promises on that. But, if the market reacts bullishly to FOMC, it’s a distinct possibility. I won’t rule it out, but it’s also not so easy for me to insist on it, either.

So, I will continue to do my best participate where I can. As noted in the chat, I have rolled my puts to December, I have some short-term calls, and I am attempting to go long on futures. That way, if we do go up, my put duration will be able to survive the rally (and I will greatly add to the position at the 200-day-ish area, averaging them down), but if we fall right now, my short-term calls (SPY) are a small position and I will let myself get stopped out on futures. But also, this way, if we go up I can participate.

But, I wanted to show the similarities between these two rallies, as they’ve now unfolded.

Taking into account all manner of things, such as long-term charts on a lot of stocks, the possibility that the bond bull market is over, and all sorts of other things, I don’t have a lot of confidence that the bear market is over, and to the contrary, it may still even be relatively early. It could morph into something disgusting and multi-year in duration.

That said, I’m not going to be dogmatic about that, and I’ve mentioned many times before (like here) that a very big rally (even back to all-time highs) would clean a lot of things up. BUT, this structure we’re in is very big for that kind of move at this point, and the decline into the October low did some technical damage (I haven’t gone into this, but it broke a DeMark support level down there for instance), and that damage inclines me to expect another low. And the problem with this structure as a whole is that if we get that additional low, I think it’s likely to be a doozy, because it will then, in turn, do even more technical damage. So, I’m open to a lot of things. It’s possible this rally has topped. But, I sort of think the bulls have a great shot at the 200-day above us still. But if (IF) we do happen to find tested support on the 200-day, then I will be far more open to a much bigger move to the upside. So, let’s see what happens.

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