$SPX Evening Update

Ok, so let’s review what’s giving me anxiety for the moment.

The question for me is:

  • Was the technical high at the early December high?, or
  • Was the technical high at the mid December high?

And the answer to that matters and makes all the difference. I have been interested in the interpretation that places the technical high at the early December high, which would give us a flat from that high, giving us a 1-2 in intermediate (orange) degree. I liked that count because of things like strength in high yield, sentiment, etc., etc.—all the things I’ve been complaining about lately.

Now, if the “orange 1-2 is done count” is right, we should move up powerfully in a 3rd wave, and we are moving up, but

There’s always a but. I like that we’re moving up, and I was positioned for that. But, I know we need to enter a central third wave at some point and I don’t see that yet. I also know that if we’re going to keep the 200-day, we will probably need to gap over it, and all of that was set up nicely this week with the economic data and we stalled here instead.

And I also don’t like it when I can’t see a more obvious 1-2, and I wanted that, I wanted a nice a-b-c in minuette (orange) degree for blue 2, like this:


But where is it? Instead, we just kept going straight up, and it forces me to try to squeeze in the blue 2 either like this:


Or I have to insist on an expanded flat for blue 2 like this:


But this is much too big—I think—for a b-wave here. So as soon as things started going my way, I am already filled with suspicions, which is why I dumped my calls as discussed earlier (here) and moved my puts. My reservations are simply me reacting to the price action. I wanted a 2, I don’t see one. The fact that we’re just going up makes me think this could just be a short squeeze, and that’s maybe not so good.

This opens the door—to my mind—to the bearish count. It’s bearish in the sense that it moves the technical high to the mid-December high, and if we do that, we still need 3-swings lower and we only have two of them. We will need an A-B-C in the minor (green) degree to complete intermediate (orange) 2, and if this is right, we only have an A and a B, and we’ll still need the C.

Now it’s possible that the green B is in today, in which case we simply start falling. But, it’s also possible that we do some grinding up here as they destroy options in the January cycle (a big reason I rolled my puts out of that cycle). If we don’t drop straightaway but grind instead, we can make a wedge up here, like this:


Ok, so that’s the thinking here. I thought we would probably go up and we did, but in the course of doing that, I’m not totally convinced yet that it’s what I was looking for.

A couple more things that might point to a high here.

Junk bonds have been strong. My original thought for some time here has been that we would go up to retest the trend line above us:


And we are making great progress in that direction.

But, let’s look at the fibs.

We just so happened to come right to equality of legs today:


That’s a 1:1 relationship between Orange A and C. It doesn’t have to stop here, but if it does, then orange C could be here and not up there. And so if SPX grinds up in a wedge, and this starts to fall, JNK can diverge and lead us lower up at a high in equities and that can be a warning sign.

And let’s look at a tech stock, Amazon.

Now my thought has been that cycle (yellow) “a” is in, and we’re moving up in an A-B-C in primary (pink) degree. And I think orange A and B of that are done, and we’re in orange C. That’s what I called for on the other counts page, and we’re moving up as expected. It looks like this:


BUT, I don’t actually know how big orange C is going to be. I put it up there aggressively at the 1.618 extension, but what if orange C only reaches equality with orange A?

If it does that, it can also be this:


Right there at $100, a nice round number. So it’s conceivable that this goes up some more if SPX wedges up a bit, too.

And also, let’s look at the dollar. On that, I am looking for intermediate (orange) 1 to finish at some point, and it should get a respectable bounce.

This very latest decline (from the Green 4 forward) looks to be only in 3 waves (the blue 1-2-3 of green 5 of orange 1):


So if this is right, and it congests for a short while in blue 4, then makes a new low for blue 5, that’s the kind of behavior we might see while the S&P congests in a rising wedge. And at that point, the dollar can get a bounce to more properly retest its 200-day, and that might coincide with one more drop in equities.

So, it is possible that we go shooting up from here. But, if we don’t, we might either drop straightaway, or we might form something choppy like a wedge. I wanted to have the technical high in early December, but I can’t know whether that’s the case. I don’t have some structure in this latest rally that I had wanted to see. And there are open possibilities in some equities and the dollar that can support the view that the mid-December high was the high (instead of the early December high) and that we’ll have another drop.

In response to that, I am inclined to hold some puts and watch because I don’t see everything I wanted to see here (especially that missing blue 2—it does bug me: it’s a warning to me, at least).

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