Three Charts that Continue to Incline Me to Caution

As a follow up to my post from earlier, I want to point out a couple of observations, one more on the S&P 500, one on Apple and one on the Dow. In all 3 cases, these assets are at resistance in various forms and it’s at least worth pointing out.

Now, on the S&P, I’ve been using a channel from the COVID crash low through the January 24th low, which is a bit arbitrary, but the 1/24 low seemed significant, and at least in the short-term, recapturing that channel will tell us something important. We’re right at it now (green arrow), and it’s not exactly the strongest recapture: more like we’re barely hanging on to it. Reentering the channel with great vigor and then retesting it from above would be preferred (we may still get that, but until we do, we should note that we have not yet). Today’s rally was a bit less than I was expecting (I know it was big, but given the rally off the 2/24 low, I was expecting something to begin looking like that rally).

SPX

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Couple of Count Updates to Account for the Lower Lows

Since indices overnight have made new lows, I will need to update some counts I have recently provided for $ES and $YM (here and here). Assuming we’re not crashing, we can modify the structures to accept the lower lows as I’ve noted below.

I know it sucks trying to catch falling knives, but I don’t yet see enough signals suggesting that the ultra-bear count is the best one here. I think it remains more likely for the time being that we’re bottoming somehow for this big green 2.

$ES (note the channel support here—that goes all the way back to the COVID lows):

ES

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$YM Elliott Wave Count

Here is how I am inclined to count the Dow futures ($YM). The target for the expected minuette (orange) 3 is the target box, but given the look of the structure from here, it may extend to either of the two other targets above the box as well.

If I see another triangle in my lifetime I am going to hang myself.

YM


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The Great “Bull” Case

I am open to a big pivot here. In “The Great Bear Case,” I began pointing to the mounting and troubling signs in the markets and I added thoughts here, and here (and in a few other places as well). That wasn’t all for naught as we soon entered a terrific corrective period. Those signals pointed to a topping process and in such an expensive market, we must remain open to the possibility that any particular top isn’t just a top but rather the top. And so I was open to that. So what’s changed?

Well, for starters, this is what I wanted to see. A real expansion of range to the downside. I think I even referred to that as a “murderous expansion of range” at one point. Doing so would allow us to interpret the move down as a genuine impulse, from which we would have no doubt about what was coming. But we never got it. I set conditions and they weren’t met.

Furthermore, Twitter has provided me with an invaluable insight into participant sentiment. And in the early stages of the decline, I was full on bear-tard and got so much pushback. It was delicious. It gave me confidence that people were, in fact, hyper bullish there and that we would continue the decline (and we did). But in the last two drops (in which we barely made new lows) a huge swing in sentiment happened and people (so it seems to me) swerved wildly to the other extreme. Everyone is one foot out the door. Markets just don’t top that way. And now that I’m announcing my renewed bullishness publicly, again, I’m getting tremendous pushback. What we need to see is a huge impulse down in which everyone sighs with relief and says, “That’s the much needed correction we’ve been waiting for.” That’s when it’s all over. And that’s not here. Not even close.

Let’s do some charts.

I first noted that $QQQ formed a high-probability triangle here and that’s still good. And that leads us to the problem of what to do with $ES, which is difficult to count here. I had been viewing the move as a leading diagonal, but Friday messed things up:

  1. The green arrow low should have been the overthrow low, the final leg of the structure
  2. But if so, we should have exited the structure in a much larger wave two and the orange arrow high is much too small for that to be the case
  3. But it would have to be since we made a new red arrow low

ES

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Bear Flags and Frothing Bullishness: Local Structure on $YM

I’m getting about 20-30 comments every day saying things like this ad nauseam: “Christmas rally,” “You’re early, bro,” “Too soon,” “Not yet,” “Patience,” “One more high, bruh,” “5000 first, then we drop,” “Dude, your timing is off,” “b-but the Fed,” “b-but corporate buybacks,” “b-b seasonality” and on and on and on and on.

And yet, we sold off sharply at the highs (a warning), $JNK and $OIL both look like shit, and we’ve had some successful bear flags of late, which I haven’t seen in a long time. We had a nice, big one on $ES that did just what we like them to do. My members are also watching one on $RTY (here), and now we even have this bear wedge on $YM as well:

YM

I have rarely seen so many people in such a froth to get in long at any price in my life. Give me some bullish structures and I might, at the very least, consider it. Until then, nah thanks.

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The Great Bear Case

The gamma squeeze, “cubic function” look to the last rally has given me great pause. I have spent a good deal of time thinking about it. I have shared my basic conclusions about it with you already, namely, that it may very well turn out to have been a finishing move, rather than a beginning move (I’ve discussed that here, for instance). But I am now increasingly concerned (excited?) that it may have been the finishing move.

And in fact, in answer to the question “Why on Earth did we go up like that?” I think the answer is essentially this: I think that was the total, utter, final capitulation of the bears.

I am going to run through a whole bunch of things in this article, just laying out pieces of evidence and observations. It is not my intention to sell you on the bear case; rather it’s a truth-telling expedition, in my opinion. I believe strongly in the bear case here, and I will share what I believe is the truth of the market. But it’s not my intention to persuade you, rather, to express what I feel is true.

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In the Event That We Do Not Want to Be Stupidly Bullish, Here Is an Option

I wish I had a grand conviction. I’m torn: price says up (here’s that count), but my bearish instincts are screaming at me to be cautious. I have to believe the madness will eventually end. I really would rather it be sooner than later.

Here’s an alternative we can keep in mind to prevent us from becoming intoxicated by price alone.

I noticed on $RSP the other day that the weird low we put in formed a beautiful triangle. See where I have the primary (pink) 4.

RSP

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Note: When my work is first published on this website, it is made available to patrons who support my work through my Patreon account. Over time (usually after a period of a few months), I make the work public. To gain access to my work when it is produced, please consider becoming a patron. More information may be found on my About page and on my Patreon page.