Weekend Review of the Markets

I don’t have a tremendous amount to add this weekend, but there are always of course things that can be reviewed. I will do that, and I will add a couple of things to my present train of thought.

My basic thought for the time being (since this) is that I am inclined to give the bulls the benefit of the doubt and I will entertain the idea that the October low was the low. That basic thought means that the December highs were an interim high, and we’re correcting that in some way now—consolidating those gains in some fashion.

I have been exploring two local views (bullish and bearish) that are two ways to express that consolidation: the bullish view says the consolidation is done sooner rather than later, the “bearish” view has us making another swing lower before it finishes. (Note that both are “longer-term” bullish—I don’t think any of you have been confused by that, but I wanted to make that explicitly clear: i.e., the bearish view is “bearish” for the purposes of swing trading.)

The thought from Thursday evening suggested that in either the bullish or bearish scenarios, we might go up, and we did. So let’s review those briefly.

On the bearish view (we need another substantial swing lower), we may have a 1-2 in blue (of green C) complete:


If we fall dramatically from here and blast through the prior consolidation in the 3800 area, then this count can work.

And, on the bullish view, orange 2 might already be in, and we’re already in a big impulse wave up, and, if we’ve had a “1 up” (with that rising bearish wedge/leading diagonal), we may need another swing lower to complete the “2” (I have it in the blue degree on this chart):


And so this also remains possible and if we drop—as in the first scenario—but don’t slice through that prior consolidation, then it might be up and up and up from there.

So all that sounds good, and we will have to see.

HOWEVER, I want to add one more thought and the bears are going to hate this (sorry). What the hell do we do if we keep going up? We’re at the 200-day, and we even went above my orange target box by the close, and I know that if we have a gap on Monday, that’s very often how they break resistance at that major moving average (statistically, when I’ve looked back many years, it looks to me that when we retake the 200-day and keep it, about 80% of those times involved a gap). You’ll notice that we gapped it in mid-December, but then we immediately lost is, so gapping isn’t a lock, but if we gap it and keep it for a couple of days, probabilities start to rise—maybe dramatically—that we are going to keep it. And if that happens, neither of these two counts above are going to work.

With the first count, the “bearish” one, I’m looking for an A-B-C in green to complete orange 2. That count suggested equality between the lengths of green C and green A. But, of course, I can’t know that those legs will be equal. Equality is a frequent feature, but any fib relationship will also do.

And as it turns out, the low we just made on Thursday has a fib relationship where it stopped. And so, if we do gap this 200-day and keep going up, I will able to do this:


This count calls the low of orange 2 in on Thursday, and if that’s right, we should move up a lot—I would expect us to retest the highs at 4100. That would be a break of the major red trend line, and somewhere up there, we might begin a retest of that trend line from above, and for all I know, that might even coincide with the upcoming FOMC announcement on the 1st of February (that would be the green 1-2 up there).

Alrighty, in sum: the counts I went into Friday with worked, as they both pointed in the same direction in the short-term. We got that move, and a drop from here can let us keep those counts for a bit, but if we keep going up, I at least have some idea of what we might expect. The continued strength in Bitcoin, the persisting weakness in the dollar, and our proximity to the 200-day all make the last count a reasonable possibility, so we will have to see what this week brings.

I hope everyone has had a nice weekend.

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