Some Weekend Thoughts Before the Abyss: Bear Porn Edition

I just want to organize a few thoughts this weekend. And I would like to say something obvious, something that should go without saying, but I want to make sure some folks aren’t upset.


I have been open to bullish outcomes for much of this year. Why? Well, it’s because I’ve lived through rate hike cycles before, and usually they’re not quite this bad (in fact this is by far the worst in history). And I also know that, historically, “technical” bear markets are just as common as long-lasting bear markets that go much deeper. And in April in particular, sentiment deteriorated so sharply that I became alive to the possibility that we may have been much closer to a bottom than I had at first believed possible. And so I wanted to remain open to that possibility—that the bottom could be at hand. Now I am changing my mind here in the short-term, but it’s almost entirely due to technical reasons. There are structures forming in the markets that are almost certainly very bearish. And I want to respond to those. So, I’m not trying to be edgy, or cute, or flip-floppy; I’m simply acknowledging that bear flags are bear flags until they are not. And many of these are well-defined. In fact, all year, one thing we have lacked is really good bearish structure on the way down. And now we have them, so we should pay special attention.


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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Extreme Caution Remains Warranted: A Strong Further Decline May Still Lie Before Us

May still lie before us. I do not possess a crystal ball. But, there is a technical structure I am observing that may suggest a further decline ahead of us in risk assets. This article will lay out the idea in detail.

I am not here to confirm or deny anyone’s bullish or bearish expectations for the markets. I endeavor, instead, to objectively assess the situation in anticipation of its unfolding. In the spirit of that, let us summarize the merits of the bullish and bearish cases, respectively:

Bullish case:

  • It has been my expectation that a reduction of pandemic-related restrictions combined with the weak Omicron variant (leading to herd immunity) could produce a feeling of worldwide relief that could support a very strong appetite for risk assets for quite some time, perhaps even several years
  • We seem to have not—by many sentiment measures—experienced the type of euphoria we typically see at major market tops
  • Many of the destroyed growth names have already endured terrible and lengthy bear markets and if those were all to end soon, their next moves could be tremendously bullish
  • We will be hard pressed to find historical examples of markets topping prior to rate hikes being implemented, and, in fact, they often top long after the rate hike cycles begin (and there has been no yield curve inversion, GDP continues to grow, etc., etc.)
  • There is an enormous amount of “cash on the sidelines,” some estimates I see place that in the trillions of dollars.

Bearish case:

  • The short and intermediate trends remain decidedly down, and if we go much further, longer term trends may also become threatened
  • The events in Europe may cause rapid-onset contraction in many economies (Russia’s of course, but also, say, of Germany’s, as 70% of their energy supplies come from the now heavily sanctioned Russia—see how the $DAX has interpreted these events)
  • A rapid contraction will of course not been seen by leading economic data
  • Any such unanticipated contraction may become contagious

Weighing these two groups continues to lead me to believe that we are in a correction, and not a bear market. A point of clarification: when we use the phrase “bear market,” we can mean two things: oftentimes, we mean by that a long, and drawn-out decline in asset prices lasting many months or years; or we can mean a “technical bear market,” typically understood to be a decline of 20% from a recent high in a major index (such as the S&P 500). When I conclude that a “bear market” continues to seem less likely to me here given the totality of the evidence listed above, I am referring to the former sense and not the latter.

And one thing that I will be suggesting today is that I am open to the latter. That is to say: though I do not expect anything like the GFC or the dot-com bubble bursting, I am open to some further lows ahead that may even put the S&P 500 in a “technical” bear market.


To begin, I would like to look at the basic structures on $BTC. Where liquidity flows, so flows the Bitcoin candles, and it’s far easier to use technicals on a single chart like this than to try to do so on a complex of variable risk bonds or something like that.

Some general notes:

  • It has the appearance of two, consecutive head and shoulders patterns
  • The top of the one on the left coincided with the beginning of the decline of all the high growth names
  • The top of the one on the right coincided with the top of the Nasdaq
  • Thus, if we can draw some conclusions about this asset’s future, they may assist us in predicting the course of equities

Now differences between the two head and shoulders patterns are interesting:

  • The right shoulder of the one on the left never seriously broke down below its respective neck line; the right shoulder of the one on the right did
  • The right shoulder of the one on the left developed into a falling, bullish wedge; the right shoulder of the one on the right has produced (so far) a far more directionally agnostic wedge. Though symmetrical triangles are understood to be directionally agnostic (the “bullish divergence” on the RSI many believe they see is rendered null and void as no new low in price is present), following a steep decline, they are perhaps more reliably interpreted as “continuation wedges,” which gives the present picture a far more bearish look than how things looked last summer

BTC

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Let’s Take a Quick Look at Oil

I believe that $OIL has completed an impulse wave to the upside. It may fail anywhere here around the orange box just above us, and if it does, I would expect it to enter the orange box below us before finding support. After that, I expect it to continue its uptrend. If such a scenario does begin to play out, I will endeavor to release an updated chart on this.

OIL


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Forgive Me for Doing This to You

Now, I know it seems like I throw a lot of ideas around, and it’s because we’re in a giant triangle—I believe—(that’s where the upcoming “B-Wave” comes from) and it’s a volatile structure, full of uncertainty and I have to try to navigate through it on almost a day-by-day basis. And though I use many “risk signals” to help me to guide my counts, since we’re not in a trending market, I may seem like I’m flip-flopping around a lot, and while I am in a sense, it’s not been a bad strategy, as I’ve caught the basic motions of the market fairly well, though timing precise bottoms and tops is always most difficult.

What I’m going to do here is lay out an alternative that has just come to mind today based on many things I watch. I’m going to walk through all the steps so that you can see it’s been reasoned out and is not simply a whim.

Now, I’ve been bearish here, and that’s paid off, as we just gave back a big chunk of that rally in a single bite. I adopted a bearish tone on the 28th because some of my risk signals were winking at me, and we went exactly sideways and then got this nice flush. But maybe that’s all my risks signals were pointing to, for all I know.

I’ve acknowledged the possibility for us to make another push up but something helpful has happened today. There are two instruments that have been especially challenging for me: Bitcoin and the Nasdaq 100.

With Bitcoin, I first thought it was going to rally, and when it didn’t, I expected it to fail. And while today is sort of a good start, it’s not been quite what I was expecting and it’s given me a big clue. In this chart below (from a prior post), I expected a fairly significant 5-wave impulse from minor (green) B to minor (green) C.

BTC

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Another Risk Signal: $OIL

I want to add this to my list of risk signals that are creeping in to my attention.

My expectation was for $OIL to be in its 3rd minor wave (I noted that here). 3rd waves are unmistakable and when they don’t show up I stare intently. A 3rd wave of this degree should have carried us effortlessly to the big orange box above us at a minimum.

Instead, I want to point out where it stalled (green arrow). That thin orange line is the exact point where the rally from 12/20 until now equals the rally from 12/2 to 12/8. That is equal legs. To the tick. And that is exactly how we distinguish between “corrective” and “impulsive” structures. An impulse up here should have some real extension in it. A correction here would have equal legs. Also, the smaller orange box we’re in now is the 50-61.8% retracement of the prior decline. All of this means that my minor (green) 1-2 could be a corrective A-B instead.

Now, if this gets off the mat and rallies really hard, so be it. But until then, it still needs to prove that to me.

OIL

 


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Some Various Thoughts on $ES

I am presently inclined to continue to count $ES as a nice, big impulse wave here. So far, my first instinct is to count us as within minute (blue) 3 of minor (green) 1. Blue 3 may have finished today or it may still be a bit ahead of us. If this count is correct, we would like to see some consolidation for minute (blue) 4 followed by one more rally to complete the structure before getting a 3-wave pullback for minor (green) 2.

ES

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Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.


Micro Inverse on Oil Targets $72

A successful recapture of the neckline of this inverse head and shoulders pattern on $OIL targets about $72.

OIL


Note: When articles are first posted, most of them are made available only to my Patreon supporters (I do try to publish some public posts on occasion). Over time (usually after a period of a few months), I make all of 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. In a nutshell, Tier 1 members ($20/mo.) get access to the articles, Tier 2 members ($35/mo.) get access to those, plus counts on about 20 other instruments, plus Discord server access.