The Weekend Review: Let’s “Study” the Charts

First, let’s do a recap. Given the similarities between a rally we had in July and the formation we’ve just had, I accepted the possibility that the fractals may repeat. And since the structure in July turned out to be a “1-2,” I became open to this becoming a “1-2” here as well (you can review that here and here).

I suppose anything is still possible, and if that still turns out to be true, we would still need a blue 3, 4 and 5, like this:


And given our proximity to the 200-day SMA, I would have to suppose that we would consolidate above that moving average, then squeeze one final time before a strong collapse. And that may still work. I would suppose that getting above that moving average would induce a lot of program buying (and short covering), and perhaps that is the volume they are seeking if they intend to continue the bear market.

However, one problem with this is that we’re not yet behaving like we’re in a 3rd wave up. Coming out of the “2” in July, strength quickly took us right above that blue 1, and we haven’t done that yet. And it was that relative weakness (now compared to then) that I could see pre-market (here) which caused me to be suspicious and caused me to back off my small long position immediately on the open on Friday.

So, if we’re not powering up in a 3rd wave, we’re only left with a couple of options, it seems to me.

One option is that we have actually already topped. And if so, we would rather see an impulse wave moving down, and we’ve only formed an overlapping structure to the downside. But, it’s possible that it’s a leading diagonal, like this:


And if so, it may need another drop to finish the little orange “5,” but they can also fall short and so it can also already be in. I would think maybe it needs to be a bigger wave with another drop, if it’s an orange 5 of blue 1 in a leading diagonal, but, we will have to see.

Another possibility however is that this overlapping structure is an expanding triangle. These sorts of structures can lead to moves in either direction. If a leading diagonal, we should eventually move lower, but maybe if it’s a triangle, we can still go higher. And one interesting thing about this is the difference between this possibility and the idea in the first chart. In the first chart (where this is a 1-2), we need two additional rallies (the 3 and then the 5), and that should put us above the 200-day because there’s just no space left between here and there for two additional rallies. And maybe that would be very weird in a bear market (assuming we’re still in trouble until the Fed actually pivots).

And so if this structure is a triangle, it would probably be a “B-Wave,” like this:


And so in this case—if you’re a purist about labelling—we can call it a Green W-X-Y composed of 3-wave moves instead of a Green A-B-C (I tend to just use A-B-C’s and accept “C-waves” as 3-wave moves when I need to, it makes no real difference in actual trading the markets and simplifies life).

And so if it’s a “B-Wave,” then we only need a “C” and that’s it, and there’s no need to push so high. This will allow us to arrive at the 200-day—if that’s what they need to do—or even pierce it, but there need not be anything bigger than that.

And, just like the second chart, where we might need one more drop for the 5th orange wave, on this interpretation, we may need one more drop for “e” of blue b. But, they can fall short, and not be very pronounced, and the structure can be done now.

Zooming in a bit, I find it notable that this orange buffer (support and resistance level) has only really been able to serve as resistance on Thursday:


This inclines me to think that blue b is in, and that we may up from here. But, if the “e” leg of blue b needs another low, it can also still do this:


So, of all of these options, I think I like the blue b triangle option the best. And I am inclined to think that it could be over already (“e” is done), but I will wait until next week in case “e” has one more leg to go. It is possible that it’s a leading diagonal, and that a top is in, but I am simply assigning that a lower probability for now. A few reasons: the Tesla thought still looks good to me (here) making a decent rally there still possible.

And likewise, with Bitcoin:


The big orange 1 (of pink 5) should be done, and from there, I can see a rally for Green A (of Orange 2), a decline for Green B, and it just looks incomplete to me without another rally for Green C (of Orange 2). So, I am inclined to think that this will more likely rally again, too.

In Sum: I remain inclined to the view that we are in a countertrend rally in a greater bear market that will most likely eventually take us to 3000. I am inclined to think it has further to go to the upside in the short-term. If it does, it may go the 200-day and reverse, but I am also open to it going even say as high as about 4200.

I am not married to this view, and will be on the lookout for a big drop in case the high is already in. But, I want to give the bulls a lot of space still if they need it, because I don’t want to have a big green candle shoved up my out-only port, and that is still a possibility here given the sum of the evidence, I believe.

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