On the Eve of Election, Liberals and Conservatives Must Unite, as America's Supercycle Peak Approaches

"Civilizations die from suicide, not by murder." 

-Arnold J. Toynbee, A Study of History 

"I would rather have questions that can't be answered

than answers that can't be questioned."

-- Physicist Richard Feynman

[What follow is my rather lengthy introduction to, and analysis of, some of the ideas that are pulling America in a dangerous direction.  I first began writing this several months ago, and have wrestled with publishing it at all.  Perhaps my analysis is wrong.  Perhaps not.]

Imagine you live in a primitive isolated village and you need to travel from Point A to Point B, but separating you from Point B is a vast, untamed wilderness filled with mortal danger. There are no roads and no structure connecting the two points. You can attempt the journey, of course, but you will probably not survive.  You are tempted several times, but always decide against it -- it's just too risky.

Years go by, and eventually some of your neighbors do attempt the journey. Several are never seen again, but each trial-and-error attempt gets the village just a little closer to the goal. Finally, after several decades, success! A team of villagers make the roundtrip journey and some of them live to tell. They return with a map that shows the areas that allow safe passage. 

In time, the village turns that passage into a path, then that path into a road. By the time your children are old enough to make the journey themselves, they can travel the road easily. You can recall a time when NO ONE could reach Point B... but your children know of no such time. The journey has always been easy for them. 

As is human nature, they take the road for granted.

In fact, they often make remarks such as, "Why is this road filled with so many curves? It seems like a waste of time. Can't we just cut straight through the wilderness?" 

You explain to them that countless lives were lost to make the road you have now, and how fortunate they are to have such a road.  "But what about those big potholes?" they shoot back.  They have many doubts. 

This is because there are at least three ways to view the road: 

1. You can view it as a blessing that allows travel where travel was once impossible. 
2. You can view it as an overall blessing that's a bit too restrictive in certain places, and thus in need of minor repairs.
3. You can view it as a curse that "limits" you to only traveling in a specific fashion ("that one road, with all its stupid rules!"). After all, there's a vast wilderness out there, and (seemingly) infinite ways to travel from Point A to Point B. Why should everyone have to travel this same flawed road?  This road is holding everyone back!

As someone who's been around for a while, you can spot the obvious fallacies in View #3 -- nevertheless, a growing number of villagers are latching on to that viewpoint.  The road does, from one perspective, "limit" our path of travel, yes -- but we learned the hard way that some type of road is the only way we can travel at all.  

Thus it is not "holding us back," it is freeing us because it makes an otherwise-dangerous journey possible.

Let's move from the metaphorical to the literal:  There's an old dichotomy that paints culture and American politics as a struggle of "conservatives vs. liberals" -- but I would argue that both are necessary in a healthy Constitutional republic.  Why?

Because this piece is already lengthy, I'm going to oversimplify:  In brief, conservatives "conserve" -- they function to maintain the orderly structures (they manage society's "roads," if you will).  Liberals, on the other hand, seek to make the roads more accessible to all members of society.  They look for ways the roads can be "improved," so to speak.  Conservatives maintain boundaries; liberals push boundaries.  This creates a push/pull dynamic where (ideally) gradual progress is made.  Both sides offer important checks and balances to each other, because:

1. Often there is indeed a need for some degree of change and/or expansion. (This represents liberals challenging the conservative mindset.)
2. Not all ideas intended to create "improvement" actually improve things.  In fact, there are infinite ways to mess things up, but only a very few ways to do things right.  Thus most new ideas are really bad ideas, and due to The Law of Unintended Consequences, new ideas often make things worse, not better. (This represents conservatives challenging the liberal mindset.)

So this push/pull forces conservatives to change when change is needed, and forces liberals to slow down (or stop entirely) when change might cause "unforeseeable" problems.  Get rid of conservatives, and the roads become chaotic, with lanes running in all directions, and ultimately less effective instead of more effective.  Get rid of liberals, and the roads will fail to implement the necessary improvements to be properly utilized by a growing society.

Get rid of both, and society collapses entirely.

Because, underpinning all that (in a healthy society) there is a shared goal amongst most liberals and conservatives, and that is to make things as functional and efficient as possible for the greatest number of people who are participating in that society.  

In other words:  The basic structure of the roads themselves, which were created by society to help society in the first place, are valued by both conservatives and liberals.

Gradually, over time, the roads (hopefully) both maintain order and are improved upon.

And I mention this because there's a "new" mode of thinking that has gained incredible momentum in America over the past couple decades.  I would argue this mode of thinking should unite liberals and conservatives against it, because this "new" mode of thinking doesn't want to conserve or liberalize the roads.  

It wants to demolish them entirely.  

Which, going back to our original point, would obviously not be an improvement, and would not "free" society (as its proponents argue), but would instead revert every one of us back to the chaos and danger of the vast, untamed wilderness.  It would return us to the more primitive, less-functional world before roads existed.

This" new" mode of thinking (which, in my estimation, is actually a very ancient and long-ago superseded mode of thinking), which conservatives and liberals should unite against, is broadly known as "postmodernism."  (In a few moments, I'll attempt to explain how postmodernism has made massive inroads into the mainstream.)

Postmodernism argues, among other things, that everything is subjective; (essentially) all ideas are equally worthless.  More specifically, it argues that there are an infinite number of interpretations of reality (this is actually technically correct)... but then it extends that to extrapolate that thus no interpretation of reality has any more validity than the next interpretation (this is, self-evidently, fatally incorrect).

In short, postmodernism argues that nothing is or can be better than anything else.  This is innocuous enough when applied to the arts -- albeit it's a bit silly to say that Miley Cyrus is the exact equal to Mozart -- but the spread of postmodernism hasn't been contained to the arts.  The philosophical aspects of postmodernism are becoming/have become embedded in our institutions, far beyond the arts.

And these institutions have achieved a wide-reaching influence on America's thinking.  

Let's expand a little on the concept of interpretation of reality as it relates to the realm of ideas (because how we interpret reality, of course, leads directly to our ideas about reality) -- then we'll return to this in more depth in a moment.

Several months ago, I wrote a piece titled Is America Approaching the End of a Supercycle Rally? and, in part, discussed how you cannot build a structure, then turn around and demolish the very foundation of that structure. At least, not without collapsing the entire structure. 

We are suicidal if we take the approach of: "Hey, we finally got the second floor we wanted, let's demolish that old first floor! We don't need THAT anymore!  Look how outdated everything on the first floor is!"  

Things just don't work that way, because, of courses, our second story is built upon the first story; demolish the first story, and the whole structure comes crashing down. We could be forgiven for believing this should be obvious. 

Yet we seem to have become a nation that's anxious to demolish the first floor. Maybe, because ideas are abstract, we don't realize that's what we're doing.  Or we don't recognize our own foundational principles -- the principles we should be preserving -- the principles that underpin the entire structure.  If we don't know what the actual principles are or why they have value, we can't or won't pass them on.  And thus we don't realize exactly what we're teaching (or not teaching) the next generation. 

Our core principles in any endeavor -- our ideas and ideals -- are everything.  They are the proverbial foundation of everything that comes after, which can be likened to a physical building.  Demolish those principles, and nothing above that level can survive.

Nietzsche was attempting to warn of the dangers of this in his famous "God is dead" statement (which is sometimes misread).  Paraphrasing, he essentially warns that we have killed that which was most sacred in our culture, and we'll never be able to wash away the stain of that blood. 

This is because humans, whether we know it or not, are constantly striving to reconcile our internal contradictions.  This is why lie detectors work:  We are so uncomfortable with contradictory ideas that they cause us literal physical stress, which is picked up by the lie detector.

When we demolish a core principle, then the ideas that were built upon it become isolated contradictions, and we will eventually need to reconcile those contradiction by demolishing them as well.  Let me give two kinds of examples of how this works (because it works constructively or destructively, depending on the quality of the core principle).  First is a constructive example:

One of America's founding principles is that "all men are created equal."  At America's inception, a percentage of the population certainly wasn't behaving in accordance with that principle, though.  The practice of slavery was obviously a direct contradiction of that principle, and that contradiction created a dynamic tension to end slavery.  Ultimately, as we know, slavery was indeed ended -- the principle prevailed against outer reality.  That same principle then prevailed to enhance women's rights, end segregation, expand civil rights, etc., and remains the keystone principle that defends the rights of all Americans.

The pen ("the idea") as they say, is indeed mightier than the sword ("the reality").

"All men are created equal" is at the core of the principle of equality of opportunity.  

Note: This is NOT to be confused with "equity," which is drastically different, and means "equality of outcome."  Equality of outcome is the OPPOSITE of equality of opportunity, because the two principles clash destructively and cannot coexist.  F.A. Hayek explains it well:

So the old principle is gradually being subverted by an idea that sounds similar on the surface, but is drastically different if you think it through.  

• Equality means we are all afforded the same laws, protections, and thus opportunities.
• Equity means we are all given the same outcome, which requires everyone to be treated DIFFERENTLY, with different laws, different protections, and different opportunities.

This leads us right into how this "core principle precipitates outer reality" rule can operate destructively:

Now, what might happen if we abandoned the principle of equality of opportunity in favor of equality of outcome?  Well, we'd no longer have a fundamental justification to maintain equal rights for all people.  To obtain equality of outcome, we would have to treat people differently instead of equally.  In time, as each generation passed, we would gradually lose our rights again, because there would be no core idea holding them together.  If we can treat people differently for X ("equity"), we can treat them differently for Y (insert your worst dystopian idea here, then rest assured something far worse would come to pass -- we routinely tend to underestimate how bad things can get).

This is because nothing in the world is more powerful than ideas.  Everything starts as an idea.  

To contemplate how powerful ideas truly are, consider the truth behind the following statement: You don't "create" your thoughts; your thoughts create you (or, as Jung said: "People don't have ideas; ideas have people."). I believe I can prove this statement, as follows:

We tend to think our ideas come "from" us, but can any of us really point to the place where ideas originate? I can't. They just sort of pop into consciousness from some unseen depth. I might direct the general line of thinking (for example, "How do I solve XYZ problem?"), but the true genesis of the idea is a process that occurs below the conscious level. Thus our ideas are not so much a product of "us" (at least, not our conscious selves), it is more accurate to say that we are the product of our ideas. We are the product because our ideas spur us to action, and our actions define who we are. 

Yes, an idea without action is dead; but there will be no action at all without an idea. Thus ideas are more fundamental than actions. 

A town, a nation, any organization, really, is nothing more than the sum total of ideas made manifest. The entirety of mankind is really nothing more than a constant collision, clash, and synthesis of various ideas, from which even more ideas are born.  And from which consequences are borne. 

If your idea is to drive to the store, and my idea is to run a red light, then our ideas might collide destructively. More desirably: If your idea is to keep from drowning and my idea is to throw you a life preserver, then our ideas mesh constructively. 

In either case, we will both bear the consequences of our ideas, for better or for worse, for a long time to come.

Which brings us back to:  How I interpret reality, in turn, leads to my ideas of how to manage reality.  If I interpret myself as drowning, then my idea becomes to swim for my life.  If my interpretation of reality is, instead, that I'm floating in a pleasant chocolate-flavored pudding, then I may decide to swallow as much of this liquid as I can, and I will likely drown.

Clearly all interpretations of reality are not "equally invalid" (to defeat this core tenet of postmodernism from earlier).  Some are clearly more pragmatically useful than others; while other ideas will lead to needless suffering.  

Ideas that increase suffering are clearly (in my view) not equal to ideas that reduce suffering. 

Since our ideas relate directly to our interpretation of reality, flawed interpretations of reality can ultimately be downright dangerous -- both on a personal level and on a societal level.

So I think we can all agree that some ideas -- thus some ideologies, some social structures, some paradigms -- are, by logical extension, clearly better than others.  An idea that minimizes suffering is clearly superior to an idea that maximizes suffering, regardless of either idea's stated goals (i.e.: an idea that claims it will improve things but instead causes more suffering when put into practice is a bad idea, no matter how many rainbows and unicorns it promises).

I cover all this because if we are to understand what's happening in America today, we need to know what's going on beneath the surface.  Ideas, as we just outlined, lead to action.  When actions turn destructive, you can be certain that the underlying framework of ideas took it there.  Actions do not occur in a void.

Said another way:  Ideas have consequences.

Now, if we are to muster any defense at all against destructive ideas, we need to consider where these postmodernist ideas, which are gaining an increasingly-mainstream following (many Americans have unwittingly accepted one or more current ideals that, whether they know it or not, have their roots in postmodernism), will ultimately lead us -- beyond the obvious nihilism that comes when one views everything as equally meaningless.

Identifying which current popular ideas find their roots in postmodernism is a critically imperative task for America.  Why is it imperative?  Because postmodernists completely reject the entire structure of Western culture.  

Think of it this way:  Let's imagine some religious cult holds the core belief that trees are awful and must be destroyed.  You don't agree with that, in fact it sounds downright ridiculous and dangerous to you.  But if that same cult uses their core philosophy to build other ideas, some of which actually sound pretty darn reasonable and worthwhile to you, so you begin to practice those ideas, well... do you think any of those ideas, which you are now practicing, can ever be good for trees?

Of course they can't.  Because the core philosophy is the sworn enemy of (in our analogy) "trees," it can never and will never develop ideas that act in any way to further the well-being of trees.  Likewise, postmodernism offers nothing good for Western culture.

And the thing is, there's certainly no shortage of flaws in Western Culture -- at least, when compared to an imaginary perfection.  If you want to pick America (or anything) apart, you'll never, ever run out of things to criticize.

You can also do this with your spouse, your job, your car, your home, yourself, the weather, and literally anything and everything else.  Everything in this world falls short of perfection and it always will, so if you look for the "bad," then you'll simply never stop finding it.

But if you compare America to other real-life human constructs, and to mankind's real history of governments (most of which have been truly oppressive), instead of comparing it to perfection, you'll find it's done exceptionally well.

The fatal flaw in postmodernist attacks is that they attribute all the problems in Western culture to the structure of Western society -- instead of looking a level deeper and attributing those problems to humans themselves.  There's only so well that anything that involves humans can perform, so there's a point at which striving for more gains takes us backwards.

It would be like blaming your car for breaking down after you filled its gas tank with kerosene.  You are laying the blame in the wrong place, so you will naturally address the "problems" your car is having incorrectly.  For example, even if you set fire to your car in anger and buy a whole new car, you're going to find out (by the most expensive and least efficient route possible) that your new car won't run on kerosene either.

Anyway, let's see where else this idea that "all interpretations of reality truly are equally invalid" leads.  For one, if that's true, then we can no longer establish any objective measures of truth -- in fact, we would reject the very concepts of both objectivity and truth. 

And this is exactly where postmodernism goes:  Postmodernism criticizes objective notions of reason, objective reality, ideas of human nature, and ideas of absolute truth (among other things).

Well, if we rid ourselves of pesky concepts such as objective reality, what are we left to embrace?

What are we left at all?  

We are left only subjectivity and subjective notions.  We begin to embrace notions such as "my truth" and "your truth" -- as opposed to "the truth."  (The sum of 2+2 could be anything!  Maybe YOU think that if you have two apples and get two more apples, you now have four apples, but that's just YOUR truth, not anyone else's!)  We are left to embrace feelings and "lived reality" over reason itself, and this allows us to emotionally avoid the check and balance of objective reality.

Which can actually be quite appealing.  If avoiding reality is attractive at that moment, anyway, as it certainly has been at some point for every single one of us.  (Problem is, the last thing we need is a ready-made EXCUSE to avoid reality. We may already want to avoid it, so a rationalization only makes our unhealthy response more acceptable.)

Now:  Can you think of any examples in modern America where these basic ideals of postmodernism are being expressed?  Areas where truth is no longer accepted as objective, but viewed as purely subjective?  I'm sure you can.  

And if you think for a few minutes, I'm sure you can think of many.

And this shift is occurring because this is what we are teaching our kids.  This is what we have been teaching our kids for a couple decades now.  And these destructive seeds we have planted are finally beginning to flower and manifest externally in the physical world, as ideas always eventually do.

If these ideals grow to full maturity, they can only bring complete chaos, an order of magnitude worse than what we're seeing now at the ground level.

Postmodernism is, in essence, actively engaged in undoing the Enlightenment.  That seems to be one of its goals.  Why would that be?

Because in postmodernism, all the complexities of human motivation are boiled down to one single motivation:  Power.  

Postmodernists believe that everything you do is done solely to obtain or maintain power. Altruism, reason, love, rationality -- none of those are real, to the postmodernist. 

You don't categorize things to make sense of the world, or to organize yourself and your society.  No, that would be rational.  The postmodernist would argue you categorize and discern only for purposes of power.  And this, in turn, attacks the most core principles of Western society; the very principles that brought us individual, technological, and societal advancement such as has never been seen in the world before.

Because:  

What is reason if not a way of ordering and categorizing things?

What is the Scientific Method if not a way of attempting to determine objective reality?

What is logic if not an aid in determining truth?

All of those concepts are rejected by postmodernism.  And if you argue, for example, that reason has intrinsic value -- well, the postmodernist will say you are only attempting to "maintain the idea of reason for purposes of power."

You can likewise find these postmodernist ideas (that everything is about "power") now taking hold everywhere as well.

And here's the thing:  You can actually make a pretty compelling argument for all of it!  Especially to someone young.

Are you starting to grasp how truly pernicious this is?

If there's no truth and no objective reality, and you're only employing reason for purposes of power -- well, we can toss the Enlightenment (logic, reason, the Scientific Method) right out the window.

But before we do that, we must ask the question:  If a philosophical attack on Western thought believes the only thing that exists is power, what possible motivation can that philosophy have -- what could those who practice that philosophy seek to gain -- besides the only thing it believes is real (power)?

So postmodernism must, by necessity, seek the lone object it believes true.  If you believe only one thing is real, you simply cannot seek anything else, because nothing else exists to be sought.  

Meaning that postmodernists, for all their flowery-sounding goals, in reality seek only to gain more power.  By their own implicit admission!  

This presents a new problem for them, though, particularly in a country such as America.

Because how can you gain power when structures already exist that are working reasonably well for the vast majority of people?

Well, you must create the impression that this is just not so.  You must convince people that things are NOT working reasonably well.

In this way, you might convince enough people that those structure are not actually working for most people.  You must convince people that those structures actually represent some type of injustice.  You must convince people that those structures contain core flaws, "systemic" flaws; flaws that make them unsalvageable.

Because only then can you convince people to join you in tearing those structures down.  Humans are actually quite motivated to take action if they believe injustice will occur if they do not.  Especially in America, where we have canonized ideals of justice.

So, presumably because of their goals and the route they must take to achieve them, the postmodernists have found an odd bedfellow in the Marxists.  Presumably they see Marxism as a way to achieve their goals of tearing everything down to gain power.  After all, it worked once in Russia.

The blueprint the Russian Revolution left them this is this:  The first thing you must do is convince one class of people that they have enemies in another class within their own society; people within society who are acting against them, hurting them, malevolently keeping them down.  You can do this by framing everything as a competition between different "groups" within society.  You also must identify one group as the primary enemy of all other groups.  

In Russia, you went with the bourgeoisie vs. the proletariat.  Those classes are not so easily identified in America, though, because it's a far more egalitarian society.  So you might instead break people down according to ethnicity and gender, because those are the two easiest traits to identify.  

Then you pit them against each other. 

Instead of the bourgeoisie vs. the proletariat, you have the "oppressors" (whom you have so helpfully identified) vs. the "oppressed" (whom you have also so helpfully identified).  And indeed:  We are repeatedly told that men are oppressing women.  We are repeatedly told that whites are oppressing everyone.  White men, of course, are the worst offenders under this new caste system -- even if they were born poor and destitute and with limited opportunities.

We are pitted against each other daily.  Everything is framed as a struggle for power (sound familiar?).

Having witnessed Marxism unfold in the 20th century, we know how this narrative will end if we don't stop embracing it.

It will end in bloodshed.  

*****

But if postmodernism succeeds there, then, in the ensuing chaos and vacuum left by (the previously reliable) collapsing societal structures, they can finally gain the only thing they truly believe in:  Power.

To return to our starting analogy:  Once the old "road" is gone, you can build a new road -- which will almost certainly be far, far worse for the majority of people.  But that new road will feature YOU in control of it, and for the postmodernists, that's all that really matters.

And this, in a nutshell, is exactly what we are witnessing unfold in America today.

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Side note:  Postmodernism also denies the existence of human nature -- so a postmodernist would debate my conclusion that their philosophy appeals to the base side of human nature (since they believe there is no such thing).  However, I think anyone who knows themselves and strives to be more than they are understands that human nature is real and intrinsic, because they have wrestled with it firsthand -- and have also witnessed other people wrestle with the exact same challenges.  Which leads one to understand that certain experiences of being human are universal, which postmodernists also reject -- which is why you hear people who've been taken in by the trappings of that philosophy say things like, "You can't understand, because you're XYZ identity group!"  Which, in turn, is one of the reasons postmodernism has led directly to a recent resurgence of tribalism.  If only humans in your "identity group" can understand your pain, then you have drastically limited those you feel you can "relate" to, and have isolated yourself from others.

I would argue you've done so falsely.  Because no one will ever share our exact experiences.  No one.  However, if I've been run over by a car (I have) and you've fallen down a flight of stairs (unknown), then we probably both have a pretty good idea of what it means to experience physical pain.  In fact, we probably have a much better idea than someone who has never so much as broken a bone, no matter what superficial traits (skin color, gender, etc.) we may have in common with that person, and no matter what superficial traits we may NOT have in common with each other.

See, we're all in the same boat as humans, and what shapes us is based on our experiences and our understandings of those experiences, not our "identity group."  If we feel the need to latch on to an identity group, the group I have always chosen is "human."  We all have far, far more in common than we have in difference.

*****

So, all that to say:  If postmodernism continues to make inroads as it has into academics, sociology, psychology and even science (as paradoxical as that may be) -- which has in turn led to its inroads into the national mindset and into politics... if people continue to unwitting adopt these philosophies without recognizing postmodernism's false guise of "We're only supporting [insert good things]!  Are you AGAINST [good things]?!  You must be a [bad thing]!" then we will continue to tear ourselves to shreds.  That outcome is inevitable, because it's baked-into the starting ideas.  

There's nowhere else these ideas can take us.  

Therefore, if we can't stop these poisonous ideas directly, then America will, like most great nations before it, die by suicide.

Welcome to life near the end of a Supercycle.  

Can we delay or prevent our demise?  I certainly hope so.  That's why I wrote this piece.

“One of the signs of a great society is the diligence with which it passes culture from

one generation to the next. This culture is the embodiment of everything the people

of that society hold dear. When one generation no longer esteems its own heritage

and fails to pass the torch to its children, it is saying in essence that the very

foundational principles and experiences that make the society what it is 

are no longer valid.”

-- Winston Churchill

SPX Update: Target Captured -- Inflection Time

Last update highlighted the next two target zones if bulls couldn't recover the base channel.  Yesterday, SPX captured the second of those near-term targets.

That gives the market the potential of three complete waves down (though it may need one more new low to be a three), and that means the easy money is over for the moment.

In conclusion:  In Elliott Wave, once you spot the first impulsive turn, then you know to expect at least one more impulse in the same direction.  From there, you can build in real-time and try to determine if there are still waves needed to make a complete a three wave move (an ABC) -- that's the technique that kept me looking lower from October 14 until today.  But sometimes, such as now, you simply don't know if the market wants to turn that three wave move into an impulse (five waves instead of three).

So that's how we saw this decline coming from early-on, then rode it down in real-time -- but now the market will have to decide if it wants to end on a corrective (three wave) decline, or extend that into an impulsive decline.  And in that regard, I'm just not sure. If the decline is to become impulsive, then it will still need blue 4 and blue 5 to complete a larger (black) bear (3)/C -- but I can't guarantee that happens at this stage.  If it does, then I have already sketched out the target zones for such a move.  On the other side of the trade:  If bulls want to turn it back up here, they do have that option. The first thing they'd need to do is sustain a breakout over the black channel and back into the red channel. If they can do that, then bears should probably at least be cautious. Trade safe.

SPX Update: Preferred Count Comes Through Shining

On October 14, I noted that we had our first impulsive decline since the September low, and that this signaled at least a near-term trend change, with further downside expected.  On October 23, I reiterated in clear language that "Bears Still Have the Ball," and sketched-in some 3/C target zones.  The first of those zones was captured on Monday, but it appears that was only the bottom of the micro third wave (see chart below).  Also note SPX bounced from black support back up to test the blue line from underneath:

Bigger picture... we're not quite here yet, and we'll take it as it comes, but here's something to at least be aware of -- starting with: if bears can sustain today's breakdown:

In conclusion, as we've seen so many times over the years, an impulsive decline arrived early to announce the change of trend, and the market has since responded.  We are now nearing a downside inflection zone, so we'll have to see how the market reacts to the break of the red base channel on the first chart.  If it's going to bounce, it would typically do so fairly soon after that break.  If it can't recover the base channel, though, then it may enter an acceleration channel and the speed of the decline could increase.  The next couple sessions will be important.  Trade safe.

SPX Update: (Exact Minimum) Upside Target Captured...

Last update, I typed "3449" every time I meant "3549" (hopefully readers knew what I meant!) -- but other than that, no change.  The overall thrust of the last update was that it appeared SPX had formed a b-wave low, which meant that any bounce was likely to be corrective in nature.  I mentioned (in the body of the article) that the lowest price point where a c-wave rally could complete was ~3467 -- and that may be exactly what happened, as SPX peaked at 3466.46 before reversing lower.

It's still possible for wave 2/B to become more complex (or for the wave to 3466.46 to be wave 1 of C), though, so be aware of that.

In conclusion, other than to correct last update's typo, there's no material change.

Also, on a personal note:  I almost hate to do it with the election pending and the potential market fireworks that could go with it if we end up in a chaotic "nobody will concede" post-election situation scenario (likely), but I have some things going on beyond just the market (if you can imagine!) and will be taking about a week and a half off from the updates, probably starting next week sometime (exact schedule to be determined).  

Trade safe. 

SPX Update: Bears Still Have the Ball

Last update noted that we probably had to continue giving the edge to bears, and SPX has made a new low since.  It then proceeded to bounce right at the previously-noted blue support zone:

The only thing that's slightly bothering me on the chart above is the diagonal shape of the decline -- but I'm having a tough time seeing how the 3549 high could be a b-wave, so I'm ignoring the diagonal shape for now (however, on the outside chance SPX clears 3449, then we'll know why).

Also be aware that there's also a count where the (presumed) c-wave rally could end near ~3467, as discussed in the forum yesterday.

Zooming out to the daily chart, we can see SPX is back below the larger pivot.  We can also see that blue 3/C from the chart above could take SPX roughly to the black trend line on the chart below... which might then be "decision time" for whether the decline from 3549 is going to be an ABC or a larger impulse that takes the market south of 3209:

In conclusion, as long as bears continue to hold 3549, we're going to continue giving them the edge with this pattern.  It's worth noting that 3/C on the first chart could take us right into Election Day and align with "decision time."  A contested election (which seems rather likely no matter who loses) could potentially stretch the decline into a larger third wave that takes the market south of 3209.  Trade safe.

SPX Update: Bears Do Their Thing

Last update noted that the last bounce had stalled just shy of the first key overlap, which kept bears in the game, and gave 3470 as the first warning zone for bulls.  SPX sustained a breakdown at 3470, and then proceeded to drop another 50 points to the next support zone.  This puts bulls in an uncomfortable position.  Although I can't entirely rule out a WXY (bullish corrective wave), we probably have to utilize Occam's Razor and favor the most parsimonious explanation, which is that we've now seen a larger impulsive turn (which suggests bears continue to hold the ball for now).

On the hourly chart, bears overlapped their first meaningful overlap, but bulls did manage a bounce at support, which is another reason we shouldn't entirely discount a WXY just yet:

In conclusion, the easiest conclusion is that we've seen an impulsive turn from the gray (2) high (3549), though I wouldn't exactly call that "straightforward" at the moment.  From an aesthetic perspective (and yes, there is an aesthetic to charting), I'm not crazy about the presumed wave 4 of the decline being so much larger the presumed 2, so I'm not able to completely disregard the potential of a WXY.  

That said, we probably have to give the slight edge to bears unless bulls can reclaim that 3549 high.  Be aware that the most bearish outcome of that would mean a retrace all the way back to (and below) 3209.  The most bullish option would be that the decline from 3549 is Wave A of a pending ABC, with a bounce to be followed by another similar-sized leg down.  (And again, everything in the prior two sentences is predicated on this NOT being a WXY decline.)  Trade safe.

SPX Update -- and More

Off-topic from the immediate market, but very much on-topic for the long-term market:  What should you do when you see your society is floundering?  What should you do when you see your society embracing destructive ideals under the guise of "good"?

Should you stand aside quietly, and hope the ship rights itself?  Or hope someone else addresses it?  Or hope it just goes away on its own?

Or should you speak up and risk upsetting someone?

I've decided I should speak up.  Not that I want to.  I absolutely do NOT want to.  Especially in the current environment, where division is rampant, where everyone is on edge, and where a certain percentage will shut down (intellectually/emotionally) the instant I wander outside the boundaries, and some percentage will make no effort whatsoever to understand what's being said.  They may even choose to take offense.

But I believe I see at least part of the reason division is increasing (hint: as with most things, the problem is not what "the majority" are telling us it is.  If the majority had it right, then I wouldn't even need to discuss this, because they'd have already fixed everything.).  

And I believe that unless this trajectory is halted soon, division will continue to increase until we devolve into irreconcilable tribalism.

I thus believe I have to speak up.  I've already put it off for about six months.  The world isn't getting any better, though.

Where to begin?

Should we start with the Central Banks?  What have they encouraged for the past couple decades?  Rampant speculation, certainly.  But more than that.  We need to get below that, to the root.  The roots give birth to everything.  The reason "unintended consequences" take the masses by surprise is NOT because you can't spot those consequences ahead of time -- you typically can spot them, if you look two or three levels deeper -- it's because most people look at the surface of the issues.  You won't find meaning, and you won't find the future, at the surface.  You'll find it at the roots.

Ignoring human action and motivation is folly.

Let's draw an example using the aforementioned Central Banks.  When the Fed punishes savers by keeping interest rates artificially low for an extended period of time, what behavior are they encouraging?  What mindset are they encouraging?  What mindsets and behaviors are they punishing?

For one, they are punishing people who are conscientious.  Those who try to "save for a rainy day," those who try to minimize risk, and plan for the worst life might offer, are punished.  Meanwhile, those who engage in risk-taking are rewarded to an unnatural degree.  And more importantly, those who maximize risk-taking never seem to have to face the consequences of their malinvestments.  They are bailed out -- they are thus never "punished."  

The Fed has created an unnatural environment, one that punishes thrift and rewards high-risk hedonic behavior.

If we were to think in Darwinian terms, the Fed has creating a playing field that is now selecting, promoting, and propagating an entire generation based on specific traits.  Managers who take on exceptional levels of risk are rewarded; managers who practice caution are punished.  

So yes, on one hand, it's "just financial" -- but it's more than that, isn't it?  The Fed is handing success to people who will not fare very well in more "typical" environments (where high-risk behavior often results in high losses).  And this is driving the people we'll need (in the future) away from being promoted.

So who has been rising to the top for the past couple decades, in this environment?  What type of personalities will be in control when the seemingly-endless party finally ends?

That's right:  The exact WRONG people to deal with a risky environment.

When the party ends, we're going to want cautious, conservative, and conscientious people in charge -- but those people have been driven out.  They have been out-competed based on the current environment.

This is what I mean by looking at the roots.  We can't just look at the surface (what most people do), we have to examine and anticipate the epiphenomena as well.  In this case, the Fed is doing more than creating an unnatural environment -- they are unnaturally altering the hierarchies of the future environment.  And not for the better.

But our problems don't end there.  They probably don't even start there.

Our problems run deeper.

Because a strong society can recover from financial blunders, grow, and become stronger.  A weak society will not.

What is society?  In a sense, it's a contract, not unlike (at the micro level) a marriage.  We all agree to behave in certain ways -- for example, I agree not to light your house on fire, and you agree not to shoot my dog -- and we all further agree that people who break those rules should face some sort of punishment.

There are other rules in society that are not legal, but are spoken or unspoken social contracts.  Such as: It's probably not illegal for me to cut in line at the supermarket, but nobody is going to be too happy with me if I do, and it may even lead to a physical confrontation from someone behind me.  That's a pretty meaningless example in the grand scheme of things, but there are other things happening now that are not so meaningless.

One of those things is the stifling of free expression.  Did you know you can now get fired for "liking" the "wrong" thing on Twitter?  And I'm not talking about liking something crazy, I'm talking about liking something that would have been considered commonly-accepted knowledge a mere decade ago.  (It's gotten so ridiculous that I'm quite sure I can't even give an example without offending someone.)

So, once again, what are we (as a society) rewarding?  And what are we punishing?  Because through this we can discover:  What are we teaching our youth?

Well, for starters, we're teaching them that the world is something other than it is.  Beyond human beings, the world is actually quite a hostile place, in the middle of an incredibly hostile universe.  Life isn't "safe."  Prior to the last 120-odd years or so, humankind spent most of its energy struggling just to survive against the constant onslaught of nature.  People were routinely killed by bacteria, by heat, by cold, by wild animals, by unexpected weather, and so on.  

As one example, antibiotics have only been in use since about 1936 -- that's only the span of one human lifetime -- and prior to that, a massive 30% of all human deaths were caused by bacterial infection.

We seem to have forgotten how powerful nature is, though, and how truly humble we are in the face of its reality.  We forget that at any moment, something as common as a single comet could wipe out most life on Earth.  We forget that a coronal mass ejection could take out the North American power grid for (according to FEMA) a decade.  We forget that a pandemic could wipe out a massive percentage of the population (we got lucky with Covid-19, which has a better-than-99% survival rate -- even so, according to the Wall Street Journal (Aug. 20, 2020), a virus with the spread of H1N1 and the mortality rate of Covid would likely have resulted in 2 million dead.  So we got lucky in several ways.).

Point is:  We have managed to impose order on the world for a few generations, but we have not done this "by ourselves" -- we've managed this only because nature has been extremely accommodating.

We are currently living in what is objectively the safest, most prosperous time in human history -- yet from 1999 to 2017, the U.S. suicide rate increased by an astounding 33%.  Clearly, we are failing to pass some key pieces of wisdom, some key coping mechanisms, forward.  In fact, given that suicide is not simply holding steady but increasing, it appears likely that we are actually doing the opposite, and teaching our youth at least some ideals that must be very damaging to the human psyche.

In future pieces, I may attempt to examine what some of those ideals might be.  (Even though it's pretty much guaranteed that I'm going to offend someone.)  As I said, I don't want to do this -- I'd rather just make jokes about Jay Powell and not risk offending anyone (well, besides Jay Powell) -- but I feel this is too important.

I'll leave it at that for now.

*****

Looking at the charts, we can see that the market must have read the prior update, as it stalled perfectly at the first overlap (thus keeping all options open for now):

In the prior update, I wrote:

As we can see on the chart above, bulls have not yet overlapped any key levels, so it is still technically possible for the bounce to be a fourth wave.

That remains true, for now.

Stepping back, we can see that the rejection at the first overlap (above) then led SPX down to the bottom of the red trend channel (below).  It's going to open this morning with a bounce off that support level:

In conclusion, everything discussed in the prior update remains active today.  It's worth noting that the decline from Friday's high to Friday's low is only three waves down so far (meaning it's a POTENTIAL abc) -- so, using ES as our guide, that suggests that the ~3470ish zone (cash) is the first downside warning zone for bulls, while Friday's high (the first overlap) remains the first upside warning zone for bears.  Trade safe.

SPX Update: Market Behaved Exactly as it Should Have

Wednesday's update predicted another leg down would be forthcoming:

SPX has rallied back to retest the all-time high, and does appear to have formed a small (50 point) impulsive decline from its most recent high. This suggests bears have the first chance for a turn since the rally from 3209 began. Whether that turn will be a simple ABC to be met with new highs after, or the start of something larger, remains to be seen. (All presuming that first 50 point leg is indeed an impulse; to be confirmed or denied by the market directly).

That presumption was correct, and that read was, of course, confirmed by the market.  On Thursday I posted a quick update with the micro (one-minute) wave count, and wrote:

Note that the end of day rally yesterday was likely wave 4 of either C or 3, so that makes this morning's gap down part of 5 of C/3 -- which means the larger decline is not yet impulsive and would need a larger 4/5 to become so.

That count (which I posted in the forums prior to yesterday's open) was also confirmed, as the market seems to have completed wave 5 of 3/C at the open, then spent the rest of the day bouncing:

As we can see on the chart above, bulls have not yet overlapped any key levels, so it is still technically possible for the bounce to be a fourth wave.  Yesterday's low is currently the dividing line between an ABC down from 3549 (it's three complete waves down) and an impulse down (if it were to make a new low).  Bears would need the impulse to suggest a larger trend change.

Bigger picture, if there's no new low, the decline could fit as blue 4 (there are other ways to count this, though -- but roughly speaking):

In conclusion, the last two wave counts have both proven out, and yesterday's low marks the inflection point for an ABC corrective decline that keeps the uptrend intact -- or, if a new low shows up, the potential of a larger impulse down from 3549.  As simply as possible:  No new low would mean bulls keep the ball for now, while a new low would likely shift it into the bear court for at least the immediate future.  Trade safe.