Weekend Smorgasbord of Observations

I think I will simply walk through a pile of everything I see here.


1. No Matter How I Slice the S&P, I Think We Will Go Higher

There are 8,000 ways to examine the S&P here, but in general, I think they all still sort of point up next.

On the most bullish view, We have broken up out of a bullish wedge inside a bigger bull flag in a wave 1 & 2 in minor (green), then minute (blue), and then finally minuette (orange) degrees. On this count, we should be entering the most powerful central thrust of this impulse wave.

In support of this count, first at the lows, and then twice this week, the drops have felt awful, steep, sharp and abrupt. And that’s what “twos” feel like, generally. They are spooky, no one wants to buy them, and as a result they miss the “threes,” which is where the real money is made. So if we move 300-400 points next week in a real hurry, we might be doing something like this.

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.


I Ain’t Skeered: Weekend Recap of the Markets

My basic views remain unchanged. That said, until we see a big rally, we have yet to see a big rally. I would have been pleased to see big, fat reversal candles across the board, showing some real institutional support in the markets, but they have no big appetite yet. If they are active in the markets here, they are active only very secretly, buying only to the extent that exactly offsets the supply, keeping prices in a weekly doji candle. If they are here, they are absorbing the selling and not a penny more.

Given the monstrously bearish sentiment I believe has washed over the public, I would like to believe that retail is liquidating here, but until we get a bid, there’s no way for me to know.

In this article, I will simply walk through a lot of charts and other data. Most of them can be interpreted to suit your own expectations here, whether bearish or bullish. That’s how the bastards left us hanging this week, lol. But, I hope the presentation of information is of some help to you.


Local Structure

I didn’t like having to point this out today—the possibility of a triangle—because I remain fairly well convicted about my bullish call, and yet, it does present a threat, and I would feel terrible if I didn’t at least point it out and we puked.

Now, this range we’ve been in this week could absolutely just be a Wyckoff accumulation. If it is, it is harmless:

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.


Let’s Talk Yield Curve, Historical Fractals, and More

On my data (TradingView), it looked like the yield curve almost inverted but did not, but I’ve now seen some screenshots from some Bloomberg terminals showing that it in fact did today. And the data on those will be better. And that introduces a whole new set of ideas for us.

As most of you will know, when the 10-year and 2-year treasury yields invert, it is among the very best forecasters of recessions. Also, as many of you know, an inversion tends to lead market tops, averaging about six months (a few times it’s been shorter, often much longer).

It is also true that everybody knows this.

So, a lot of people will accept this as an equity bullish signal, at least for the time being.

But there are a few things that concern me here.

  1. We had an inversion in August of 2019, and though we did have a pandemic lockdown-induced recession, we didn’t really have a recession, nor did we really have a bear market, either. As it turned out, the COVID crash was a mere correction, in the big scheme of things. While it was greater than a 20% decline, it was hardly long enough to give us that feeling of a bear market.
  2. Inversions often happen in groups: for instance, we inverted briefly in June of 1998, then the curve rallied, then it inverted again in January of 2000, and then the market topped in March of 2000, after which we had both a recession and a bear market.
  3. Notice that the ’98 inversion led the actual dot-com bust by over two years. As it turns out, the 2019 inversion may have led a looming recession by about the same amount of time.
  4. In other words, what I think no one will anticipate here, is that we may be much closer to a serious bearish decline, not realizing that the 2019 & 2022 inversions belong in the same family. I’m not saying this will happen: I’m suggesting that I am wide open to it here, and I will lay out a few reasons:
    • We do not know the extent to which the collapse of Russia’s economy will have on the world, but it may be more than we at first think; and their collapse is almost certain, in my opinion.
    • It seems to me that the Fed really may have to raise rates hard to fight inflation, and that may also send us into a deeper recession.
    • Everyone is looking at yield curve inversions from the last 20 years, but not many people are old enough to think to look back 40 years, and we’re all programmed through recency bias to expect the market to behave as it has in the last two decades, but an actual inflationary environment is something few of us have traded as adults, and we need to look back further.
    • As a result, expecting the Fed to ease before they’ve even begun to really tighten may be entirely wishful thinking.
    • They may have to raise rates a lot and for a long time, if they’re serious about inflation. I see very little that is equity bullish about that.

Furthermore, I am increasingly convinced that this rally is short covering and once it’s done, I am expecting it to fade. There seems to me to be way too many people suddenly calling for the melt up now just mere weeks after everyone was calling for a bear market (this is the result of an emotional market, driven in large part by retail traders, and that should mean that we are very near if not past a major top.

And the structure I think the S&P 500 is forming, is something I have seen before. And I don’t really like it. I hinted at it as a possibility here, and I have a better variation of it now after some more consideration.

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.


Weekend Stock Market Analysis: What Now After the Pump?

The basic alternatives are this:

  1. The lows are in and we’ve entered a new, long-term bullish structure
  2. The lows are not in and we will revisit them

Early in the week, I suggested that—at least temporarily—the lows could very well be in, and so far that’s played out. And during the course of the pump, I discussed my reluctance to look for the pump’s conclusion (here) and I also discussed the bullish potential it had (here) and so far, that’s all been not entirely misguided.

But, we also still face something of a contradiction here:

  1. On the one hand, we have lots of data points suggesting to me that we aren’t strongly likely to be in a long bear market: we have had no yield curve inversion (and even if we had, these often precede recessions and bear markets, and often by quite some time), sentiment is very bearish, etc., etc.
  2. But we also haven’t really seen a good capitulatory low (volume spike on the e-mini S&P futures contracts, $VIX spike, equity put-to-call ratio surge).

This leads me to remain open to a retest of the lows, though I will also accept no retest, as this rally really is quite impressive and could indicate to us a change in trend.

All that taken as a given, let’s look at some charts.

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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.


Some Random Additional Evidence

Adding some thoughts to the post from earlier. I had some of these jotted down, and forgot to add some of them. But, I think they’re also worth considering, so I will just run through them quickly here.


Volatility

It is a bit ominous that the $VIX will not give up this green trend line beneath it. The fact that we have been unable to, despite the magnificent rally we just had is telling. I was expecting a big rally (much later in time) that would crack this trend line, bringing us into a volatility regime change. That was part of my bull thesis. Instead, we got the tremendous rally early, but no volatility regime change. That makes me think this might now go higher.

VIX

Read more “Some Random Additional Evidence”


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.