My primary count has been a bullish count. It has assumed that the October low was a major low, and I’ve been working on how that may develop ever since. One of the reasons I have preferred that count has been my assessment that market participants allowed themselves to get probably too bearish, and it seemed like a lot of folks were expecting a crash, and it’s not been a bad idea, as we haven’t done anything of the sort since.
Now, my view has also been that we may get another leg lower even on that bullish count, and we’re waiting to see if we’re going to get that. So, to begin with, if we don’t get that extra leg lower, we’re going to find that out soon enough because we’re going to keep this 200-day moving average and we’re going to keep going up.
But, I think I have a fairly good grasp of sentiment here, and it has me at least a little concerned. There are many, many market participants who are now pretty damned bullish—and make no mistake, they have reason to be: things like Walter Deemer’s “Breakaway Momentum” breadth thrusts are rare, and they are usually very bullish signals. I accept that as bullish evidence.
But, I have a thought that’s giving me some dread. Now that folks are pretty bulled up, I think I have a good idea about what might happen if we do get that next leg lower. Yep, everyone is going to buy that next leg lower. But if the bullish count is right, it means that that will be the low to buy. But if everyone is going to buy that big dip at 3700, how can everybody be right about that? There has been a huge transformation in mood, where I now worry that maybe too many people have abandoned the deeply bearish thoughts. And, to my way of thinking, that at least opens the door to just that very sort of thing now happening. So let’s take a peak through that door and take a look at what we might see.
First, I want to make a simple observation.
These two declines are very similar in feel and structure:
That may mean that they are related, or part of the same larger “wave.”
And then these two rallies are also similar in structure:
And, even though I have been counting the rally from the October low as an “impulse wave,” quite frankly, both of these rallies are of poor quality, from a structural point of view. They are smashed, and overlapping, and lethargic. So, if they are in fact both corrective in nature, and if they are, like the two declines above, also related, we have the ingredients for a very nice way to group these in a count, and it looks like this:
Primary (pink) “A” is composed of like structures, and primary (pink) “B” is also composed of like structures.
I’m not calling for this at this time. I am simply pointing out that I am not married to any view in particular, and in the last few weeks, as bears have repeatedly been prevented a good meal, I think I am sensing a great abandonment of deeply bearish thoughts. Everybody has been on the hunt for some drops like those that composed pink “A.” And because they want them, the market is not giving it to them. But if no one wants them anymore because they’ve finally capitulated, well, now we might get something like them again. I know, it’s disgustingly contrarian of me. But it’s my website and I get to do what I want on here lol
The risk though is that if we get a drop to 3700 and everyone buys it in unison, that may not be such a good thing. In this recent article, I said that the market has been coiling and coiling and coiling and coiling. And it’s going to move and when it does it’s going to be big, and for all we know, that move can be down. And if they’re going to do that, they’re going to do it once a lot of people have given up on it happening and that could be about here. It’s simply a risk we need to remain open to, I think.
So, we’ll cross this bridge when we get to it. First, we need to at least see a drop. And if we get one to my target of 3700, and things look good and folks get very bearish again, and if internals all look good, then so be it, we can be bullish. But if we get there and euphoria grips everyone and the whole world thinks it’s too clever and gets to buy the greatest dip in a long time, it is possible that they collectively end up very disappointed.
In sum, I am going to keep this as an alternate count, and we’ll see what’s what as we go.