The bull case is that the SPX rally into early December completed a Wave 1 rally off the October low followed by a Wave 2 corrective pullback into December 22.
From there the market has rallied up to our projected 4000-4013 initial resistance based on my Square of 9 Wheel.
Theoretically, the current rally from 3764 to 4000 is Wave 1 of a Wave 3 (green).
Again that’s the most bullish interpretation.
A smaller wave 2 correction should be on deck now.
Idealized support is 3790-3850.
Yes, this is a relatively wide range, but as presumed pullback progresses it will reveal its intentions more fully.
As long-term Hit and Run members hear me repeat so often: speculation is observation, pure and experiential. Thinking isn’t necessary and often just gets us into trouble.
There is an alternate interpretation of the structure which is that the drop into December 22 was an A wave
Followed by a B wave which is in the topping process.
If this is the path then theoretically a C wave sees us drop toward the 3600 region.
This A B C pattern is delineated in magenta.
There is a tendency amongst technicians with newsletters and individual traders to make things more complicated than it is.
Let’s keep this simple.
A corrective pullback (not impulsive meaning 5 waves down) at this point is a strong likelihood that a bullish wave two is playing out setting up a 3rd wave rally.
So here’s how we’ll play it.
If you are aggressive you would be a buyer of a corrective pullback.
If you are more risk-averse, you wait for the wave 2 corrective pullbacks to be followed by a clear-cut 5-wave impulsive pattern and buy a breakout over whatever the high of wave 1 (green) proves to be—which may be the 4000-4013 region as flagged throughout this week.
We will be highlighting setups in the same names we’ve been playing through the rally off the Bear Flag that failed on January 6th with a breakout to the topside.
These include ACLS, ALB, TSLA, NVDA, and ETSY on the long side and OKTA, SMCI, and CLFD on the short side to mention a few.
Conclusion. As offered on the Hit and Run Private Twitter Feed yesterday, the market was flashing red lights with a VIX Reversal buy signal on deck. This is a sell signal for the market.
This was in the context of one of the most extreme McClellan Oscillator overbought readings in a decade.
In a bull market, that indicates a pullback. In a bear market that indicates a new leg down.
Not all signals are created equal.
All trading is contextual.
It depends upon the Primary Trend.
That Primary Trend has been down and the bears deserve the benefit of the doubt– but markets can turn on a dime, most traders cannot.
Even in the context of a bear market, there is a path to 4300.
The tension is on the tape.