Market On Open, Thursday 12 September
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Everyone Feeling All Warm And Cozy
by Alex King
With the move up yesterday and the technical pattern looking all bullish in the major indices, everyone can now relax. Q3 front-ran itself, it’s late October already and we can now just look upwards to year end and set sail accordingly.
Er, maybe.
Right now is a very high risk time in equity markets. Because it’s impossible to know whether the above is true - which it could be - or whether the traditional headfake and dump is heading our way shortly.
Here’s the pro-forma logic for each - we’ll use ES futures to illustrate this.
Scenario One - To The Moon!
You can open a full page version of this chart, here.
This chart argues that from the July high (that’s the (v) marker on the left of the chart), the market put in an a-b-c correction down, troughing at the August 5 flash-crash-Yenmaggeddon low. And that since then we have seen a technically perfect bull move up which if it continues this pattern will see ES terminate the bull move somewhere in the region of 5673-5829 or maybe, just maybe, 5946. Those numbers aren’t plucked from thin air by the way, they aren’t Furu Levels of the kind touted on ScamTwit, they are simple Fibonacci extensions.
Yippee, sayeth the bulls - from 5946 to infinity and beyond!
The problem is that if you zoom out, and you aren’t on a Celsius high, you can argue just as convincingly that the market is in a larger-degree A-B-C correction; that the selldown from the July high to the August low was the A-wave, the ginormo bounce since then the B-wave, which means, yikes here comes the C-wave.
Like this (click here for a full page chart):
The thick red scary line is the one I’m talking about. I’ve placed the end of the C-wave at a logical level, a 50% retracement of the move up from the March 2023 lows to the July 2024 highs - that was a powerful Wave 3 and the move from July 2024 down to sometime around Oct / Nov 2024 can therefore be a standard Wave 4.
I am not saying this is definitely going to happen. This isn’t a permabear Macro Doomer blog you are reading here, it’s grownup probability analysis to work out which paths markets may take and therefore to prepare either way. I am saying that if you are long equities - and I personally am biased very net long (I have an underwater $SQQQ hedge in place which will either get paid down by the long overhedges if we get moonage, or get back into the money if we get doomage) - then one should be cautious right now. What does cautious mean? It means watch what the market is doing - don’t assume you know the path it is going to take. Making assumptions and then sitting back to rest on your laurels is what wrecks people in financial markets. Watching markets and knowing that Big Money is the price-setter and that little old you - whether you be a lone retiree or a $10bn fund - you’re a price-taker. This is how to succeed in markets. Watch, have Plans A thru C depending on events, and react. Don’t twitch-react; watch, think, act. Avoid having everything wound so tight with stops and leverage and position size and so on that you can’t think because of that ulcer burning away at your gut. Get your house in order, calm down, and think. Be more like Big Money, and less like Chad.
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