Ok, here are some thoughts.
Up in the late year highs, I operated under the belief that the rally would fail. It did fail, and it retraced over 50% of its advance.
But as we fell, I was suspicious of the drop and thought that we might not get continuation, and so far that’s worked as well, as we’ve rallied.
Now that we’re here, given the options from yesterday (here), I am sort of not liking our behavior around the 200-day. If we were really bullish, I would have expected a gap over the 200-day SMA, and we didn’t get that. It’s also sort of too big for me to think this is a “b” wave of an expanded flat for a “blue 2.”
And that leaves us with the bearish count. Some folks can get bent out of shape when I feel inclined to do this, but I may adopt the bearish count. Some folks may wish I had the power to have adopted it like 3 swings in advance, but that’s not something I can do. What I did do was have a bullish bias, and we’re way up here, and now I might abandon that bias. If the market does become very bearish, much better to adopt that bias up here rather than at lower prices.
So, let’s look at the bearish count.
We didn’t gap over the 200-day, and instead we gapped to it, and now we’re consolidating under it. And this doesn’t look particularly impulsive. So, here’s what I’m thinking. This may in fact be a B-wave in the minor (green) degree. It is possible that the high of that wave is at today’s high, but it’s also possible for it to go up just a little more, to the orange box:
It is still possible that we continue to go shooting up. But, if we are going to, we need—I think—a good catalyst to enter some big 3rd wave up, and today’s CPI print was the best candidate, and it’s not given us a big 3rd wave—or so it seems so far.
And so, I am inclined to do some watching for a bit. I have closed the longer-duration calls, and the call side of my strangle, and I have rolled the put leg of the strangle forward in time a few weeks and to slightly lower strikes. So, I only have puts for the moment.
I am inclined to watch to see how this develops, and I am more open than I have been to a several hundred point drop, even if we need a little more room for a rally, even up to 50 more points or so.
Alright, so that’s my plan. I’ve had a bullish bias, we went up, but now that we’re here, I’m a little skeptical of the rally now, because it’s starting to feel simply like a short squeeze, and so I’m feeling defensive for the time being. If we do gap up over the 200-day in the coming days, and then find tested support on 4000, I will re-acknowledge the bullish case but until we do that, there are good odds that this may fail again.