Happy weekend, traders. In this weekend’s article, we’ll look at the local price action of the S&P 500, consider some bearish and bullish alternatives in general, look at the long-term picture and we’ll look at some developing structures on some assets.
In Thursday’s update, I discussed my creeping doubts about a more bullish outcome in the short-term because of the NDX’s nasty stank price action. Its smashed appearance on Thursday called into question an impulsive leg up and I offered an alternative that looked for lower prices on Friday, and that turned into an understatement.
The Bearish Alternative
As things stand now, we face a bear flag on the SPX that looks like this:
And that of course stands within the greater context of this:
This bearish interpretation will prevail if the bears can get this bear flag we’re in now to fully break down, and then they will need to get us to and then through that neckline, as well.
This is absolutely a possibility, but I do have some doubts for the time being. For starters, these patterns are probably too obvious. If they break down, that’ll be fine, but sometimes when patterns emerge that are a little too “textbook,” too many people can see them and sometimes they don’t work out.
Another reason I don’t entirely favor the bearish interpretation is just the basic observation about how price has behaved since early August.
We had a big sell:
Then we had another sell:
Then we had another:
And then another:
And despite all of that repeated selling, all we’ve managed to produce is a series of higher lows:
And this leads to a predicament when attempting to count this bearishly. You will probably have to try something like this:
And that is now the complete absurdity of counting an uptrend as an impulse wave down. Counting it this way doesn’t break any rules, but it’s been my experience that doing this is more often than not simply wishful thinking. It’s far better to count an impulse wave down where each “one” of a new degree makes a new low. But, we must note: if the bears come in force and give us some real 3rd of 3rd of 3rd of 3rd of 3rd of 3rd or whatever this is, then yeah, they’ve announced their arrival and we’re going much, much lower, I would have to imagine.
My view for a long time has been that fundamentally, we have lag effects coming from the fastest hiking cycle in history, which I think will probably lead to a recession. And that will of course in turn lead to a big drop in the market. What I don’t know is whether that’s from here or from higher prices still. I am open to both. In the summer rally, I wasn’t enthusiastic about the rally, thinking a topping action could come sooner rather than later. The rally was big, but we did get this pullback, and at one point, this structure since August even gave back a full half of the rally from May. But, now that we’re here, it’s not so clear to me that this is the top I had been hoping to see.
If it is the top, we’re going to move much lower and that will be cleared up soon. But here we are only making higher lows without a real breakdown yet, so I must remain open to the possibility that this isn’t “the” top I was hoping to see.
That leads us to the bullish interpretation.
The Bullish Alternative
For the bulls, we might see this as a harmless retest of this uptrend line on NDX:
There’s been no real breakdown yet. And we may improve on that some if we see a bull flag:
And we may improve on that even more if we see this:
Bears better show up in force and quickly.
There are some good ways we can try to count things. For starters, on SPX, we can clearly see, despite all the “higher lows,” that this is most obviously a mere 3-wave rally:
And so counted that way, it’s a countertrend rally and that would mean the trend is down. But, this is where nuance comes in. If every Tom, Dick & Harry could make money selling every 3-wave rally, we’d all be rich and never wrong. One alternative—as members will already recognize—is by accounting for things like this:
So, nuance here opens the door for the bulls, despite the obvious 3-wave nature of that advance. Nuance isn’t going to help us one bit if we fall steeply from here and if that head and shoulders at the top of the article makes its way into our lives. But until that happens, bulls at least have a chance. And, much like the NDX structure noted above, the SPX can have the same thing:
Those aren’t trivial if they play out.
Alrighty then, that’s the bearish and bullish alternatives, as far as I can see them here. I next want to discuss the long-term picture.
The Long-Term Picture
My long-term view has been that we’re in a big bear market, having put in some big “5” up at the all-time highs, and from that, we’re in a large 3-wave structure (at least). That puts us on course to either have topped in yellow “b” or has us topping soon in that “b”:
This matters because of the wave degrees I’m about to discuss. But, if this is a big yellow “b,” it’s got to be a 3-wave advance. One way to do that is of course this:
This matters because of my preferred count discussed above. And let’s dig into that some more.
So, there you have that. That’s a possibility, disgusting as it may be.
I will wrap things up this weekend by pointing out a few structures on some assets for you.
Some Structures in the Wild
Oddly enough, while the indices have been weak, Bitcoin has produced this bullish wedge, so it’s not yet participating in any risk-off-ish-ness:
So we’ll have to see what that does.
Apple, we have this locally:
So, we’ll see what happens from here. If we get going somewhere from here, we might not look back for quite a while, probably at least a few months. I hope everyone has a fine remainder of their weekends. I will see you again this week or in the Discord if you’re in there. Cheers.