Morning Walkabout

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The counter-trend bounce continues! As the viral bad news abates, anxious investors are eager to pile right back into “on sale” stocks. A cup with handle formation has successfully formed on the ES.

Now I want to be clear I am not an expert in Elliott Wave, and I know what derision this technique receives (I’ve dispensed a goodly part of it myself). For the record, however, I’ll say this: in my experience, EW was a painful joke during the entire 2009-2019 bull market, and yet during the 2007-2008 period, it was downright spooky how good it was. So I do have some measure of respect for it in bull markets.

My understanding is that, from the EW perspective, we are going through a Wave 2 bounce in an ABC pattern (I’ve roughed it out with arrows below, each arrow being A, B, and then the latest, C, in black). So in the context of a bear market, the hearty bounce, and its form, makes absolute sense right now.

How high will it go? Well, the precise answer to that is only for Diamond subscribers! No, I kid, I kid. I have no idea, or at least I don’t know precisely. I will say, however, there are some key price gaps (described to premium members last night) and Fibonacci retracement levels I am watching. One very simple item to watch, with great power, is the eleven-year-long trendline on the NQ. To my eyes, that represents tremendous resistance.

And, of course, through all of this, volatility is just burning off, day by day. We’ve lost half the fear index in the past few weeks.

In a similar fashion, people are turning their backs on bonds. I got spooked out of this last week due to a (very, very tiny) false breakout, but bonds did, in fact, turn tail at their horizontal, as the “flight to safety” trade falls out of favor.

My favorite short obsession right now continues to be precious metals miners. Gold has had an eye-popping runup lately, and unless it goes absolutely ape by blows past $1800, my view is that this is going to succumb to the same kind of selling we’re seeing in bonds right now.