Very little has changed since last weekend’s article but I will go through a few things.
Very broadly, our theme remains unchanged. We have this large rising wedge that’s led into trend line and 89-week SMA resistance:
Yesterday held a lot of promise for the bears as we gapped under the lower rail of the pattern, as did IWM gap under its, and the VIX closed just above its upper Bollinger Band, a recipe for a disaster if we got a continuation, which I thought was possible. Barring that, I thought a rally to retest the wedge from beneath was the next most possible thing, and we got a very extreme version of that. We retested the wedge alright. Tested it right through the eyeballs. Not only did we gap right back into it, but we also rallied most of the day, which got us back above the trend line that extends from the August and February highs.
So the million dollar question of course remains: is this structure going to fail? I’m no fortune teller, but what we do know is this: this is a long and tiresome, sideways range. It’s actually now exceptionally long even for long and tiresome ranges. Usually when we range in a hundred points, we do so for around 3-4 weeks and we’re pushing 5 now. All sideways consolidations are either accumulations or distributions and so if this is going to fail, we need to see signs of distribution. And that’s not easy to do, as “smart money” is good at one thing over all things: hiding their intentions from the rest of us. But, there’s a few things we can try and that leads to my discussion of structure and breadth.
So that’s the evidence I have structurally and regarding breadth for the time being.
I have a few things to say about Bitcoin. I have long complained about this trend line:
That trend line has governed the crypto bull market for years now. Above it, I’m impressed, below, I am not. And when we hit some important technicals in the heart of the first stage of the banking crisis, I was impressed by its reaction down there and expected things to be bullish and they were. But it didn’t take long for me to find this trend line and wonder how well it was going to act as resistance. And here we are, unable to clear it to this day, some weeks on. I think there’s a seller here, and many of you will have no problems seeing this, either:
Let’s look at a few more stocks and ETFs.
I have already discussed the ascending triangle on IWM in some detail last weekend. It can either be a bottoming formation, but after a big decline it can also be a bear flag:
And, like the S&P and its rising wedge, it gapped under that yesterday but then immediately gapped back into it today. So we lost it but then we didn’t. Thanks for playing.™ Bears clearly need to get this to break down, and bulls clearly need to get above all those prior highs.
And the Russell futures have made a bullish wedge. We had that bear wedge in April which I first pointed out here. And that broke down. And with this bullish wedge, we’re now perched just above the upper rail:
This isn’t (to my mind) a reason to get excited yet. Remember: the S&P just had a breakdown that didn’t stick. And likewise, not all breakouts stick, either. Nothing is more bullish than a failed breakdown and we saw that today. But nothing is more bearish than a failed breakout. And we don’t know if we’re going to see that yet.
I will return to this structure below when I discuss wave counts.
Let’s take a look at the Regional Banking ETF (KRE). After all, the weight of regionals is high in IWM.
On the 14th of April, I pointed out on Twitter how KRE had not yet met the measured move of it’s head and shoulders pattern:
The $KRE H&S has not yet met its measured move.
More trouble may still lie ahead of us. pic.twitter.com/ZDqbYWOeYv
— Dereck's Trades (@derecks_trades) April 15, 2023
Since then, it’s fallen almost another 20% and has almost reached the measured move:
Since it’s close, I suppose we have to do this: a bull will want to say it’s basically met the measured move of the H&S, the regionals will improve from here, and this can lead IWM up and out of the triangle. And bears are going to have to say the head and shoulders is probably about done but another new structure can take its place and this can get even worse. I could see either one happening, of course I do have my favorite, but both are at least intelligible here.
Let’s look at Tesla. On April 15th, I discussed the head and shoulders and at the time, that looked like this:
And since then, it came right down and struck the measured move on the nose:
From that, what to do with the structure now? Bulls will want to do this:
There is something of an inverse here. And if we keep going up, there’s a target. But, I have a quibble with this structure. Maybe it means something, maybe it doesn’t. But:
So there are our options. On the one hand, the fundamentals seem not so good. We’re not sure if all the banks that are in trouble are dead yet. And Powell’s presser didn’t seem very helpful (to me). Once again he hiked, and we haven’t yet felt the full effects of all the other hikes. And he reiterated his justification for continuing tight policy based on a strong labor market and this morning’s numbers italicized that. But on the other hand, we had a breakdown on some indices that failed. Failed breakdowns are bullish. But they’re not breakouts yet either, as the S&P is still in a range, the Russell still in a triangle. So they’re welcome to breakdown again if they need to.
So, some count possibilities:
All in all, we’re really not in any different shape from where we were just a few days ago. We fell and rallied back to where we were. We can’t rule out higher prices, but there’s still plenty of things here for bears to look to, despite the false breakdown we had. If anything, some things are worse. Apple and Microsoft can’t carry the whole market forever. And the liquidity concerns discussed two weekends ago persist and are in fact even worse now.
As for positioning, I haven’t made any changes.
We’ll see what next week brings us. We’ve really not changed in any material way. We’re glued to these levels until we’re not. I do think things favor the bears for now. I won’t completely abandon bullish outcomes. But in those cases, I think they could be short-lived if they come at all. You guys already what I want to see for the real bullish case and we don’t have that yet. If we get it, I won’t be stubborn.
I hope you found some of this discussion helpful. I hope everyone has a wonderful weekend, and I will see you next week (or sooner if you’re in the Discord this weekend and want to share anything in there).