SPX local chart price action has me at the point I want to quit and go long. My years in trading have taught me that I am wrong more than I am right with that. When I want to quit is often the high. None of the bear stuff broke yet. Bear trades are still on. But we’re so close to the fail point it’s prudent to expand on contingencies.
Absolutely none of the bullish stuff applied while SPX is trading under 4540. Swing thesis is currently unchallenged - we’re just doing this so as not to be caught on the hop if it fails. The current trade is still short with a target of 4320 for the first break.
If bears are wrong on this level, there’s a strong chance the market is going to go parabolic. There’s absolutely no point FOMOing in or panic covering at this price, but we do need to plan what we’ll do if the following swings are more in line with a bull than a bear.
I believe in a bull move, we can buy the same price we are at later. So there’s no strategic advantage being a bull here. Lot of risk and maybe not even getting a better price than will be offered later.
A bull move is usually going to break the 86 and then hold a retest of the 76 - 61.
This retest is very common. It’s rare price runs right through an 86. So we can use the 86 as a trigger level to be interested in longs and often we’re going to get to buy exactly where we are but with a lot more info to support our trade after a breakout.
This is a good general thing to take note of in trading. Test this yourself on big reversals and breakouts- more of the time the 76 will retest. Sometimes the 76 will hammer price in the other direction. The risk:reward of betting on a trend cont at a 76 just does not make sense. (But isn’t it popular right now).
While the 86 hitting does not always mean a new high, it means it a LOT. Like, if you do not respect that it means that sooner or later you’ll end up regretting it big time! And if a new high is made, there’s quite a few things that can happen. It can be the nominal bat spike out (Which we’re over-prepped for at this point) but it can be other stuff.
If we were making some huge false breakout, we’d be looking at a 161 extension of the drop and this would give us an implied topping range somewhere around 6000 (Assuming some spike outs). There are another couple ways to generate 6000 as a level. It’s an obvious zone to short if we get there and should be considered a risk for bears.
For those who are overall bearish, the full extension of a spike out really is not a risk to ignore. It would be really bad for anyone betting against it blindly. And the move is really nothing to worry about so long as you worry about future decisions you may have to make when we are here.
Making good hedges into the retests of the broken bear patterns makes it so much easier to be a bear higher. You can just hold the longs with a trailing stop. The higher it goes, the more scope you have to profit on both sides of the trade. You just have to accept the market can do entirely irrational stuff.
On the downside break, we’re looking for a run to the 61 fib. 200 points down. As we’re breaking the lows of the move up we should see a mass of new bears and the bullish gloating simmer down. Of course, likely to be a local low. Then we should be back to the current sentiment in the rally.
The market could just slam. I think it’s unlikely (But also I think it did this multiple times in 2022 when I thought it was unlikely). If we get close to this level we’ll start to plan the points at which we’d think a bull break was made and where we can trail stops and points where this expected rally would have failed.
If you’re a bear, I would very strongly encourage you to be proactive in risk management if the 76 fails as a reversal level. You probably are going to be right overall (IMO) - but we might be at the end of a 50 yr trend. If it’s a 50 yr trend, another few years and 30% - 50% isn’t actually a lot in context.
While the above time and price would be extremes, you should just respect when betting against a big trend survival is a part of the strategy. The big rallies can make you a lot more profit or they can shatter your hopes of doing well in a bear move, even if you’re right.
The strategies used here have built in ways to deal with the risks of shorting big trends. They were designed to do this. But using all aspects of the strategy is important. You can’t just take the bear trades and ignore the hedges. When good bear patterns fail, bulls usually prevail.
More short now than I have been during any of my really bearish posts. Do not misconstrue my bull risk musing with a position change - but if the bears do not do what they have to do, there will be a position change. I just want to explain it and enthesis I think it’s important.
On the largest swing basis, we’re looking for 4600 or 4300 to hit. Everything in the middle is noise. That noise can be important for trading, but ultimately bears are winning at 4300 and bulls are winning at 4600. Right now, we’re in the fight.