Could be a critical week for the bear case.

We may be at a make-or-break point in the bear case.

Charts are shaping up with what look like easy bear signals and more and more the public are coming to accept the bear is inevitable. There are more jokes about the “Pivot bros” than there are about bears now - And that makes me nervous. When everyone all knows the same thing at the same time it’s either going to be legit and be easy or a massive trap is setting up.

The bear moves we’re very prepped for. It’s been very seldom in 2022 we’ve missed any of the bear moves. None of the notable ones apart from the second decline early in the year (During which the reason we missed the trade was largely due to illness and people not being available to do updates for a while during it). Most of the other drops, caught them pretty easily. They’ve been very TA compliant.

Where we’ve struggled the most in 2022 is in the situations where we’ve had good bear signals off good TA levels but there’s been an initial drop and then the market rallied through. All of the worst forecasts of 2022 have been in these situations. Often getting good trades first and then the move not following though. I think we’re now at a point where if we make mistakes (On either side, but I am not too worried about the bear side, a lot of prep and planning has gone into dealing with a bear move) we’re liable to be harshly punished.

Being wrong as a bear in 2022 has been fairly forgiving. As long as we got stopped out and then re-planned the entry level higher, we were able to catch all of the swing we lost in and then plus some. I have a feeling if we had a failure of the strategies at this point, it’d not be forgiving. We’d be brutalised. Take the horn - in places we don’t want the horn … know what I mean?

Let me firmly state the swing bear setups has not failed as I write this. It looks as good as it ever has but it’s when things look good you should consider they may be bad. By planning how you’ll deal with being wrong when the market is moving in your direction, you greatly increase your chances of being profitable on both sides (Or at least breaking even on the side you’re wrong on).

My thinking at this point is quite binary. We’ve traded up to the 76s. We got a good reaction from the 76s. If these break, the bear setups have a high chance of failing at this level and if it does, we might not have any major resistance until 4400 and maybe even a new high could come.

It all comes down to this level in the DJI (And at this point I am just watching the DJI. The DJI is where most of the professional volume is traded through and the DJI has a real smack-you-in-the-face obvious short setup and extremely clear fail points on this signal. The high should be made here in an easy bear trend.

And if the high is to be made here, I’m wasting my time getting deep into the plans to the other side. But if the high is not to be made here, I think the market would be unlikely to give us time to make timely adjustments. It’s better to know before what you’ll do if there’s a failure of the bear signals.

Warning Signs for Bears

I don’t feel I really have to write up the positive signals for bears. If you’ve followed our work for any amount of time all the things that support the bear case as very obvious at this point. If we get a bear break we’ll update and get specific into the bear signals but hopefully by now everyone reading this knows how we deal with a bear turn on a 76. It’s bread and butter and we’ve used this to hit most of the major drops in 2022. Instead, I’ll highlight the things that warn us of a possible turn in the market and how we’d spot it early enough to deal with it.

Perma-bulls Capitulating

A lot of people who have been staunch perma-bulls are now nervy bulls ranging all the way to ranging convert bears. This is a washy and anecdotal point. Not worth much in itself but it was one of the things that prompted me to start to look more seriously into the TA case for a turn.

While this is an observation that can be made over various forms of social media, it’s not fully supported by other means of checking. So, I do reiterate, it’s a washy point and social signals have limited usefulness. When cross referencing this with brokerage stats we can see that although people have begun to close brokerage accounts and the number of new accounts opening is on the slide - we’ve not had retail capitulation like we did in 2020 at this point.

People have stopped quitting their jobs to trade options after having a great week last week. That bit’s over. But we’re yet to see people cash out whatever is left in their account and swear they’ll never touch the stock market again. So, the data and observations here do not match. I could make a case to both sides.

The most interesting thing about this is we’ve had a more entrenched bear market, more punishment for dip buyers and are down about an equal percentage to 2020 and retail are still sticking at it. Whatever way the market goes from here, I think this is telling us retail have been trained to be more risk tolerance and I strongly suspect this is setting them up for a rug-pull. A very savage one.

Retail traders are the most exposed they’ve ever been. But, to reference the Simpsons meme - maybe they’re the most exposed they’ve been, so far.

But it’s an easy to see fact that the bulls have lost a lot of their cockiness. Softer forecasts are given. People who posted jokes about bears do so far less frequently now. We’ve seen a lot of panic hedging going on into the end of last week and a lot of people reviewing their big forecasts of the market being in a dip rather than a crash.

More jokes are made about bulls now than are made about bears. As someone who’s often on the joke side of the trade, it makes me very alert to my risk when substantially less people are calling me an idiot for my forecasts. I enjoy it better when they are making jokes about me.

If you’ve followed me since the time when almost no-one was a bear, I’ve always said I’d be worried when the jokes stop.

Many Stocks Have Full Crash Patterns In

Here’s a really simple rule for crashes that you can back-test for yourself. A crash will usually come down under the last big obvious low. This is the point where we usually get real capitulation of the retail market as they panic thinking the floor has just fallen out. Many times, a market will make a substantial bounce from here (Or even a full low is made). Here’s the DJI level for this.

And this move has been the long-standing forecast in indices. We’ll come down under the March 2020 low.

However, when we look broad selection of stocks and those that have been the real dogs of 2022 - We’re at this point in a lot of stocks. I could post dozens of them. Instead, I’ll just grab some big names and if you want to go and look for yourself you can look for more fitting these criteria.

In the first one I’ve drawn in the Elliot waves down and the standard ABC bounce we’d typically get if we’re still in a downtrend but getting close to a bounce level. I’ve not marked these into the others, but they have significantly similar patterns.

I know from my experience trading breakouts on multiple timeframes in multiple markets that when we’re making this spike out, I am into the upper end of the risk curve as a bear. Sometimes it does run nicely for me but if it whips against me if the tight stops hit, all the stops hit (Or I have my stop so far away the RR makes no sense at all and it’s a dumb trade).

Now, look - I think things are going lower. I think this bull market will resolve itself in a drawdown of over 50% in indices and it could be a multi-year one taking us down over 60- 70%. If we use models from similar hyper boom moves, we’d actually find the most applicable crashes went down at least 80%. But you can get that overall thing right and get the actual trades horribly wrong.

Here’s a chart of the overall pop of the BB bubble from 2008. When BB spiked out the same sort of zone as we have in these examples, it was heading 90% lower. From 40 to 4. But it was going up over 100% first! If you knew it was going to $4 when it was $40, you could have used that info to lose all your money very quickly

On the broad strokes, the classic crash model is extremely useful in all markets. And as per that, we have actually completed full crash cycles in many of these stocks. We’d be in the “Despair” section. Not saying these can’t go lower - but I am saying the easiest part of these trades is over and ideally, we’d want a big bounce to re-load the shorts.

The Potential for a Massive SPX AB=CD

This one is all about opportunity costs. Being on the wrong side of this one would seriously ruin the chances of making a big profit in a short in a market crash that came later and not being in the long would make you miss the opportunity to essentially free-roll a mega crash.

Need to elaborate on a few points to frame this. We’ll have covered them all before so feel free to skip parts here if you know them.

An AB=CD pattern is when there are two equal legs into a high (Or low). This is a terminal pattern found at the end of big trends.

A market reversal will most often come between the 161 - 220 extensions of the last big drop. However, in the times this becomes a trend continuation pattern the easy long trade is on a spike out of the 127 - which is exactly where we trade now.

The 161 reversal trade can sometimes produce a false start signal and then make another 161 - 220 spike-out and this can be the true high.

Were we to make some assumptions here and we assume the low is made/being made and we’re going to extend to the 161 - 220 we’d find that the number of points from the March 2020 low to the 2021 high would be very similar to the number of points we’d have from the price the market currently trades today to the expected resistance levels of the 161-220 zone. This would create a giant AB=CD pattern.

AB=CD pattern is often known as a “Measured move” and my pet name for it is the “Twin spikes”. They are two moves that are similar in size and form, the second spike is often faster and more brutal to be short into. Take a second to consider what that implies. In this pattern, we’d be due to see a move the magnitude of the March 2020 low onwards rallies but it might be even more aggressive.

The March 2020 low was fairly predictable. Very easy in hindsight and we put out forward looking targets for this price at Feb 2020 high. It just went to the 161 of the last big topping swing. There’s a case to be made for us having a similar type of ending pattern here with a 161 support.

Here’s the opportunity/opportunity costs:

If in the low of March 2020 you were able to define we were at a big support and we might be due to see a 161 - 220 extension and then another big bear move you’d have been able to accumulate fairly tight stop longs in this area. You could have trailed stops on this and never been kicked out the trade. It was a smooth run.

You could have sat on these longs until we got into this zone, which is where we’d be expecting to see a turn if it was coming.

In red, I’ve marked in the areas you could start to accumulate a short position and in blue I’ve marked in the areas where we you could have trailed stops on long positions. During the topping pattern here, we could have taken short positions essentially risk free. All we’d be doing would be shorting and this balancing out our long positions. Our shorts acting as a take profit on the long position, and we could have scaled up our short at the market went higher (Rather than struggle fighting the trend until it bends).

With this trading pattern, we’d have been able to be concurrently long/short and only get taken out of our longs and have risk on the shorts when the market started to roll over. By the time our long stop losses were hitting we could move the stops on our short positions into even and we’d have a massive free-roll on the bear trade.

Here’s the same trade mapped out if we were to have twin spikes.

Three things about this:

1 - It would have really taken the pressure off positioning short. The more the market squeezed the better the op would be and there’d be no nervy stuff wondering if the trend would turn or not. If it did not turn, you’d just have banked profits from the big rally. No stress and no risk to existing capital. Just giving up future gains in a bull.

2 - It would have allowed you to add shorts into optimal levels without the drama of trying to deal with the final spike-outs. You could be largely agnostic on if the market turns or not but be extremely well positioned for if it did. Juxtapose this against the hassle of betting naked on the turn and you’ll see it’s favourable.

3 - Whatever your situation in life, this would be a net worth changing move. You could go from relatively little to substantially comfortable in these swings and if you start out well bankrolled you could become notably wealthy. If you’re already well ahead in life, this move could give you enough money to buy a fleet of islands, should you so wish.

If this trade was coming, it’d be so obvious and easy if you were prepped for it, and it would be nothing but endless pain if you were not. It’s a massive opportunity costs spot. It could be a real “Hero or zero” move, depending on how it’s dealt with. I’m not saying this has to happen - I’m saying it’d be foolish to not take advantage of it if it did.

The Dollar

I won’t go through source-linking all the USD forecasts from 2021, but it’s fair to say I was a USD bull before it was cool. And where we currently are in the USD is worrying to the bull case. The USD is on a true massive inflection point. The steam-rolling bull break is coming, or the move is ending.

While there are no absolutes in trading, I feel a massive degree of confidence the USD sits on a major decision point and the trend for the foreseeable future is to be decided here. We can define these levels with harmonic patterns. As I’ve said many times, harmonic patterns are rarely a non-event. A massive turn comes from them or a super strong breakout if they fail. This is true of harmonics on a 15 min - 1 hour timeframe - right now we’re looking at ones on a weekly timeframe. The scope of what can happen off weekly chart harmonics is awe-inspiring.

As it’s shaped up, we have a lot of agreement in the different USD based assets. Multiple of them forming harmonics and all of these complement each other to point to the major decision level being right here.

Big bearish harmonic in USDJPY.

Big bullish harmonic in EURUSD.

The starting point for the USDJPY is 2000 and the starting point for EURUSD is 2017. These are very big patterns, complex (Needing multiple swings to form) and we’re now into the action end of them. Whatever happens at these levels is likely to be critically important to the USD trend.

We also have a bearish butterfly in the DXY.

These scream warning signs to USD might turn and if it turns, it can turn hard! If USD does not get through these levels, the USD bull is usually over for the time being. I avoid speaking in absolutes (I’ve been absolutely wrong before) but the probabilities of a massive decision here are super high. I’ve given the USD due time to break the harmonics but as thing stand the levels have been respected and we have a lot of near-term candles that suggest we might be about to turn.

Look at the EURUSD weekly candles after hitting this level. It’s not subtle - Not if you know to watch these levels.

What Do I Think of FED Pivot?

I feel like I can’t really speak about these setups without addressing the obvious question of am I calling for a FED pivot. My comments on it will be brief, but I will say something. The first thing I’ll say is, you should not listen to anything I have to say about the FED. I am under-researched and, tbh, not interested. I think we’ve called most of the major moves of 2022 fairly well (While being a bit rough around the edges and caught on a few false starts). Most of these have related to FED news and I have never known it.

I sometimes read up on FED news at the end of the trading day/week just out of interest, but I promise you, if I did not even know the FED existed, I’d have generated the exact same trade plans all the way through. I do not know enough to speak on the matter and I’m not one to sound off on things I am not researched in.

I know two things about this, and these two things conflict with each other. From the last FOCM meeting I know Powell has blatantly stated there will be no pivot. And from my experience trading in the Forex market, I know the most extreme of moves have come when a Central Bank said something was the cornerstone of their policies one day and then changed it without warning the other day (And in these cases the CB actually knew they were going to do this while they publicly said they’d not).

I have limited knowledge on what the FED may or may not do and I have no faith in the word of Central Banks. The SNB event is the craziest thing that’s happen in the Forex markets in my time there. Before the event absolutely everyone (Apart from maybe a very small number of traders) knew the SNB would maintain its policies to hold the EURCHF peg. Many well thought out articles were written on it. The very day before they broke the peg the SNB publicly stated maintaining the peg was central to their economic policies. When they said this, they already knew the very next day they were going to break the Forex markets. Many pro traders were wiped out in this move. Brokerages went under. Most brokers would halt trading on the CHF pairs and then opened them 30% gaps. To put this in context, a 1% move in the Forex market is quite big. 5% moves seriously hurt most traders. A 30% move was utter mayhem. The SNB peg break was the wildest event in my Forex life, and they flat out lied about it the very day before. I’m not saying the FED are lying, I’m just saying I won’t base my whole trade plan on them telling the truth.

In Summary

Taken a lot of time to put this together and going to take a lot more time to put out actionable trading plans/levels for paid subs (Subtle ad - buy today!) and it might be a complete waste of time. We might be in the early formation of a shooting star on the weekly chart of DJI and we might have already seen the bulls punching themselves. out.

If this is the case, we’re usually going to see a bearish engulfing candle and the move thereafter is going to be extremely easy and one sided for the bears. I’m ready for that. I’ve been ready for this move for over a year. I hardly even have to think about this move at this point. Most of the trade plans for it I have largely pre-written, and I just need to make little edits here and there to put them out. I feel I have nothing to fear in a bear move. Heavily researched in how they form, and I wrote my original trade plans for this in 2021. The original plans would need slightly tweaked, but they’d not need changed.

However, if the market was to go against this and the confluence of signals, I am watching fail - that would be really bad if I had a one-sided bias. Not only would I be setting myself up for a fall with my bear positions, but the net opportunity costs of not catching the long and being able to use this to support my positioning short into much better levels would be jaw-dropping. Would be the biggest mistake of my trading life. I’m not willing to set myself up for failure when it’s easy to protect myself from it with a little forethought and preparation.

Many people know me as a bear, but I’m a Forex trader. There are no such things as perma-bulls or perma-bears in Forex. Forex markets are range based most of the time. They trend for days, weeks and months but they invariably turn. People know me as a bear because it’s when I thought a big bear event was coming, I decided to put my work out to the public. I’m really just a big trade hunter. An opportunity seeker. I don’t care what way the market goes; I care about being in the correct positions when it goes there.

The biggest opportunity at this point would be the mega AB=CD in SPX. The opportunity of this move would be at least 3* greater than the market being set to crash from this price and catching every single point from here to the bottom. The realisation of this move would be a curse to most people. Bulls, bears, investors, traders - it’d just whack them all. It would be really ruthless … Or, it’d be the biggest blessing ever. It' really is all about the preparation.

I fully understand this move would baulk against all the logic in the world. That generating forecasts such as this seem fanciful at this time - but that was the case for all of the big trades I’ve caught in my life. Every trade that was significantly spectacular was a leper trade when I first positioned for it.

The price of being caught out by this type of move would be very high and the opportunity costs would be too high.

For me, the decision all comes down to this DJI 76 fib.

I was short into the weekend, and I have swing shorts from multiple high points all through 2022. If the short continues I expect our toolkit of trades to deal with a bear move will be successful and make most of our decisions relatively easy - But if the short fails here I am banking my 2022 profits. It’s been a really good year. I am not willing to give that up easily.

I think we’re getting close to a really big swing. It’s going to 2500 or it’s going over 5,000. Honestly, I do not care which. I just want to benefit from either side of this. And, objectively, the greater of the opportunities would be the big AB=CD into the real reversal. It would massively surpass the crash from this level in terms of opportunities.

Interesting times are probably ahead, whatever happens. I’m prepared for both. Quite happy to be the doomer or the moon boi. Whichever one is going to pay out.

I do strongly stand behind my macro forecast that we’re going to see a major market failure at some point. Something on the scale of the super bubbles of the past in DJI, Nekki and Nasdaq. I think this case is extremely well supported. However, if we’re ending a 50 - 100-year bull run and heading into a multi-decade bear market; Another 20-30% above the current high and another few months to a year is absolutely nothing. Absolutely nothing! It would not significantly change the macro forecast in any way - but it would dramatically change the outcome for bears if they were one swing too early.

In 2021 I told bulls I thought they should weigh up their risk:reward and be ready to take actions to protect themselves. At this point, the same is true for bears.

If we were 90% right on the macro forecast, we could go broke being so. It’s not a risk to discount. I will be extremely bearish if we make the break. Phenomenally so. But I’ve watched and waited, and we’re yet to make the break. If I am “Right eventually” I want to get paid on that. To do that, I have to cope well with being wrong now, if that’s what Mother Market has up her sleeve.

We’ll send out a paid version of this to our subs. In that we’ll be more actionable in terms of trade plans, levels at which different plans fail. The downside target levels for a crash and the biggest ops for those speculating long or the high value hedges for those maintaining a bear portfolio.

If you want to make money in the market, you need to understand your job is to take advantage of the certainty of others bringing on their sense of complacency, fear and greed. You cannot do these if you’re looking at things through the lens of your own complacency, fear or greed. Be ready for anything.