The setup from here seems somewhat straightforward.
The thought from this weekend, in which I expected further upside was partly correct. We went up more, but instead of trading in a series of fours and fives, we pulled back somewhat deeply today.
On the bullish view, this leaves us with an even more bullish count than I had. It opens the door for this to be a larger 1-2 in a higher degree.
One way that may be counted is this:
This will get us to a nested “2” leading into the CPI print.
Another way this may be counted is this:
On this count, we won’t have as deep of a “nest,” but rather a more protracted blue “2”, but the end result will be the same in either case: a strong gap up for the CPI that retakes the 200-day SMA.
These are my preferred scenarios, and these are what I am playing for via SPY calls with some duration.
Despite that, it’s another god damned binary event, and there is always the possibility that the signals I see (poor sentiment, strength in JNK, weakness in the dollar and yields) are not telling us we’re equity bullish. If the CPI print causes a big drop, we’re going to do something like this:
In this case, we’ll also be reaching a “2”—but in the other direction—leading into the CPI print. I do think this is widely expected, and so I remain disinclined to the view. I will keep a smaller SPY strangle on in case this outcome happens, so the put leg in a drop like this will keep me from getting hosed, as they should become 10-20 baggers.
So, my bias here is bullish, but until we retake the 200-day SMA, the bearish scenario cannot be ruled out, but I remain inclined to the bullish view.