The Long Weekend Review

Ok, so let me summarize some things much like I did the other day.

In the October rally, I assumed the bear market wasn’t over and that we would have a another huge drop, perhaps taking us even as low as 3000. However, as we topped, things like high-yield credit, and the structure itself, breadth, and other things I watch were a bit odd, and I became less inclined toward that view and opened up the possibility that the October low was the the low, at least for the first of several bear markets that we may encounter over the coming years (and that was laid out here).

As we stand here today, I am more and more inclined to the view that the October low was the low. Adding to that hypothesis is the growing eagerness of market participants for a catastrophe. That counts, to my mind, in the bulls’ favor. I think sentiment is too bearish. I also think that the market is going to be further ahead of the Fed than we can easily see from our individual vantage points. I do not think the low is going to be loudly announced. I think we will see it looking backwards. And so all of this continues to make it plausible that the low is in.

Now, if the low is in, a lot of things can still happen going forward, including a deeper drop. I don’t have enough here to be strongly convicted.

Let’s look at the possibilities. We’ve just dawdled and dawdled and dawdled down here. This may have been an accumulation much like the one I suggested here. And the primary count I have been using remains intact. Carrying over yesterday’s thought, we could have simply made another 1-2 in orange, which follows on the heels of the 1-2 in blue:


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$SPX Update

Ok, so the diamond from yesterday worked well enough. The little break down into yesterday’s close did turn out to be a bear trap, and we had a decent rally today.

Now, if we’ve completed a big “flat” correction for orange “B”—which is the crux of the bullish thesis—we should keep going up. If we’ve in turn completed a 1 and 2 in blue, 3 should be up somewhere closer to the 200-day moving average, I would expect. Up there with it is the 50-61.8% retracement area of the entire decline (that’s the orange box). If we do go up there, I would expect to see some resistance in there, and some consolidation. We may even close (if even partially) the post FOMC gap. I don’t know if today was a little orange 1 & 2. We may still be in the little orange 1, and it’s also possible that the little orange 2 isn’t done yet. But, if Thursday’s low was the big orange B, that low should hold.


Not much else I can say for the moment. Let’s see if we keep going up. Until we do, there’s still risk of more decline, but at least initially, the diamond breakout looks good to me.

Diamonds Are a Girl’s Best Friend

Ok, first let’s recap a few things:

  1. In the October rally, my assumption was that the Fed was not near becoming our friend, and so I assumed that rally would fail and that the market would go on to make new lows.
  2. But as that rally topped, it did some really weird things: both in terms of its structure (weird camel humpy thing and not a clean rejection like all the prior bear market rally highs), and in terms of internals (breadth did not deteriorate at the highs [esp. BPSPX], and high-yield credit kept kicking like a mule).
  3. To my mind, that opened the possibility that the bear market low could be in. Digesting all of that led to this major article.

Now where are we? We are, as far as I can see, about in the same spot. Whether the bear market low is in or not is not something I can easily determine. I think it is still possible for the October low to be the low. But, any failure about right here will probably mean that we are going to go and retest that low. I still give the bulls a good chance here, but I acknowledge that they may not get that chance.

Let’s look at few things. First, the thoughts from yesterday still persist. Some of that structure has fleshed itself out more, and the S&P 500 has made a beautiful diamond.

And in that diamond, the 1-2 in blue is still alive and well:


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$SPX Update

I have been looking for this structure to be a “flat.” Partly due to how high-yield credit has been behaving in this topping process. If that is correct, and if it’s done at Thursday’s low, it may be possible to count the structure since then as a 1-2 in blue, with the “1” being a leading diagonal, and the “2” either done today or with a bit more still to come:


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$SPX Update

So not much of a reaction to the PCE print. What can we do? If the stealth structure I’ve been speculating is to play out, it’s possible for us to move to the top of it and swiftly. But, we’re not doing that yet, but we’re also not falling apart either.

So, if we don’t go shooting up and we also don’t crash, maybe we’re entering an accumulation of some sort, and maybe it will look like this:


This still assumes that the relative strength on high-yield credit is telling us something that I wasn’t originally expecting as we topped, but it’s something I want to listen to if it’s there. So, let’s see what we see. If something like this develops, it can become an accumulation range where ~3900 stays as resistance for a while, but that eventually becomes an inverse head and shoulders for instance.