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Friday, December 15, 2023

BKX and NYA: Lessons from the Trenches

Since last update, Powell came out and signaled that the Fed is not only ready to back away from ongoing rate hikes, but that there could be three rate cuts in 2024.  The market loved hearing this, of course, and rallied on the continued assumption that inflation is literally the only problem that was ever, or will ever be, on the horizon.

But to me, that's not the most interesting thing that happened.  The most interesting thing is the resolution of an extremely complex chart pattern.  I'll admit, while I saw the potential for a version of this in advance, I didn't foresee this version of it.  

The pattern in question is shown on the NYA chart below:


This pattern hit me right in an Achilles heel, because I simply assumed in advance that if it was going to play out as a flat, then it would be an expanded flat (meaning it would head below the blue A wave before any big rally) and not the running flat that it was.  Running flats stall without breaking the prior A wave low, and because they're quite rare, it's generally silly to "assume" running flat.  So when NYA formed an impulse down that failed to break the A-wave low, I subconsciously wrote off the expanded flat option I'd been watching, entirely skipped the running flat option, and instead assumed the heavy-odds-on-favorite:  That it was wave 1 down.  

I didn't really think about this -- when you hear hoofbeats, you think horses and not zebras.  "Zebras!" probably doesn't even enter your mind.

But this time, it was indeed zebras.  

Which is part of why this type of pattern is extremely difficult to navigate in real time, and the market got one over on me here.  Even after more than two decades, there are always more lessons from the market.

Anyway, lesson learned; I won't make that same mistake again.

BKX is interesting as well, inasmuch as it appears to be forming a classic "double-retrace" of the prior extended fifth wave.  



On the BKX chart above, do note that the blue horizontal has been on that chart for over a year for a reason, and has at least the potential to be a resistance zone, near-term or otherwise.

Not much to add beyond that.  Trade safe.

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