Greatly Expanded Evening Post (Early Weekend Review)

There are a few historical precedents I want to actually show tonight.

But, first, let’s just admire the sheer precision of this trend line strike (log scale):

SPX

That’s a magical touch. If we had all insisted we had to touch it, we would have already fallen. But I guess we all thought, “Well, maybe it doesn’t quite touch,” so it touched lol.

That could be it. We’ve had a nice, initial reaction to that at the open, and zoomed way in, it does have a decidedly bearish flag look to it:

SPX

Now, as far as actual bear flags go, it’s probably too big, and it doesn’t look proportional, so we will have to see. It’s not something I would want to label as a “one down, two up” (personally).


But, what I want to show tonight is some charts from prior bear markets. We’re above the 200-day simple moving average, and if you’re bearish, and I still think we have good reasons to be that way, it’s discomfiting. Being above that is the literal definition of a long-term uptrend. So, we don’t to stay up here for long. And just as well, what if we rally just a little more and breach that trend line just above us? That will be even more uncomfortable.

But those are not locks on a new bullish trend. As far as bear markets go, I think something long and drawn out like the dot-com bust is the better precedent for us, something where a whole lot of stocks got the hot air kicked out of them. I don’t particularly see the kind of crash we saw in the GFC (that was literally a banking crisis, as was 1929, etc.), and I’m not seeing that, per se. But, a big earnings recession sort of thing, that seems more likely (to me). And if Napier is right (and I suspect he probably is given the apparent end of the bond bull market), we may be in a weird and difficult environment for 10-15 years while they solve the sovereign debt crisis in the most humane way they can. That doesn’t mean 10-15 years down and to the right only. But, long periods like that (where they tighten on inflation), back up again (mini bull markets) where they let inflation free again for a while, then more tightening while they clamp down again, etc. As controlled as they can until they get that debt-to-GDP back under control.

And in such markets, poking above trend lines and 200-day SMAs are not fatal.

For example, in this 200-day recapture:

SPX

We didn’t stay above it long, but, in this case, we never hit the trend line made from highs, either.

But even a trend line break isn’t bad, like this:

SPX

Imagine how bullish folks were right there. Whoopsies.

In this case, we recaptured both, but we never got the tested support. To get that, we need to revisit the trend line, and then rally, taking out the initial highs, and nothing like that happened there.

So, my point is, bears should feel threatened here because we have rallied far, but, even these important technicals are not a lock. But, if we do see a lot of strength, I do have a plan, and I will use it if I have to.

I know that if “big money” wants to distribute, they need volume, and maybe pushing not to but through the 200-day was where they knew they could find it. Maybe there’s a lot of algorithmic programs that will automatically cover (or even go outright long) above such a moving average, and, if we don’t keep going up, that means that buying volume has simply been sold into. So, it’s threatening to get such a historic rally from a speech by the same guy who just gave us Jackson Hole not too long ago, and here we are sitting right at the same prices we were on the Jackson Hole day. His message seems to have been clear for a long time: and if you’re like me and want to listen to the guy, I don’t want to get weird mixed messages. I think he still wants asset prices to come down, so I think I should still be bearish here.

My guess is the funds who want to sell the market were going to rally us up regardless of what he said because they wanted that volume, and they knew a short-squeeze/200-day recapture/beginning of month passive flows combo was where they could get enough of it. So, let’s see if we get some weakness soon.


Now, another thing I want to look quickly at is the Dow. A lot of people are saying its strength is proof that all indices will follow, but that’s not necessarily true. In fact, very far from it, i think.

It does give us a mixed picture, because we now have both lower lows and higher highs:

DJIA

But we almost did the same thing in 2001, also an unusually big rally in the Dow (while everything else was much, much weaker):

DJIA

And in fact, I think both of these structures are actually very similar consolidations:

2001, sort of an expanding, triangle-like structure:

DJIA

And now, very similar:

DJIA

So, I’m not bothered by the strength in the Dow. In 2001, deep, deep into the bear market and it then too, was sitting right up there near its all-time highs.


The last thing I want to mention is this. This morning (here), I suggested that IF they take the time to distribute (they might not), we could consolidate in a small 4th wave, and then rally one more time. But, there is still the possibility that we—yet again—form some kind of ending diagonal “triangle.” They’re unusual, normally, but they’ve been happening a lot at tops this year. We just had triangles—I believe—very recently:

SPX

And very often, when people see those, they expect them to be in either “B-waves” or “4th waves” and we often expect something to come after (some other push for a “C” or a “5”). But we’re not getting them. That may mean too many people keep expecting the extra pushes.

And so, contrary to that post from this morning, IF we don’t fall quickly, we can consolidate and just fall in some kind of triangle here, too:

SPX

No extra needed rally, but we should be aware that one is possible, so clench your cheeks up there just in case.

I’m sort of fascinated by these. They’re normally rare, but not this year. And I wonder why? Usually, we get the extra squirt because too many people prematurely sell the market, and they are forced out in a little Wyckoff “spring” at the end. But maybe this year everyone is so afraid of the rallies that they want to wait for the squirts, and so we don’t get the little springs. Who knows?

Anyways, have a nice evening.


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