Wednesday, February 26, 2020

SPX and INDU Updates: Megabear Option for Consideration

The best thing about catching a decent top is that if the ensuing decline runs farther than you anticipated, it's just a bonus.  The current decline has not yet run farther than anticipated, but it has shown more FEROCITY than I anticipated... and that means we need to at least take a look at some more bearish options, to keep in the backs of our minds.

Here's the thing:  I have a hard time seeing this decline ending until the central banks intervene, either overtly or covertly.  Let's use our brains for a second:  The world is rightly scared of the economic impact of a global pandemic, and that pandemic hasn't even gotten rolling in Western countries yet.  So right now it's just the anticipation... but we're not feeling much impact here in America's actual economy yet.  What happens if/when people are afraid to leave their homes?

So it would seem the central banks will need to stem the bleeding at some point.  Accordingly, we're going to take a look at a more bearish option.

Back in 2018, we were all over the two mini-crashes and saw then coming a mile away... but one thing that always bothered me was the final wave into the December 2018 lows didn't "look" like a C-wave.  As the 2019 rally wore on, though, I figured it must have been a "hard to count" C-wave.

Or maybe not.

Today we're going to look at the "not" option:

Next up is a simple trend line chart of SPX.  Let's not jump right to the above megabear option just yet, but first watch how the market reacts to upcoming support:

In conclusion, I'm not favoring the megabear count JUST YET, but it's an option that we need to keep in mind.  First step for bears is to sustain trade below trend line support.  The first step for bulls to hold things together and keep the smaller C-wave previously discussed on the table is to, of course, hold support and start generating some impulsive rallies.  We're in the zone of an inflection point (meaning the market could bottom directly), so we'll see how things unfold.  Trade safe.

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