ES Morning Update April 14th 2020

We seem to be at a crossroads right now. The market has either topped out completely from the rally up off the March 23rd lows and is ready to drop to a new lower low (scenario one), or it’s just topped out on the first wave up and we drop down for a higher low… aka, an A wave up and a B down starting soon (scenario two). Then the C up would (should) takes us to that possible FP on the SPY, which is about 3060 on the SPX.

This is my preferred scenario, but there’s a third on as well. It’s where we are grinding higher up into the FP without any significant pullback. In this one we would have ended the A wave up on 3/31, did the B down into 4/2 and are in the C up already. Since C waves have 5 smaller waves inside them one could look hard enough and find some wave 1′s up and 2′s down already finished, and could make an argument that some kind of 3 up (then 4 and 5) is still left to complete the C wave and the entire ABC rally.

I view this scenario as least likely but it would align up nicely with the FP on the SPY as the top of the entire pattern, as well as the VIX dropping into the FP on it, so let’s not get married to the bear side. A slightly alternate of that third scenario is that today’s rally up is making a final 5th wave for that C up, so that’s a fourth possibility. This one seems more likely to me.

It would have us ending with a pierce through of last Thursdays high and then rolling over to close below it. For me to get excited about shorting more I’d want to see the close today be under the even number level of 24,000 on the DOW (but still green) and under 2800 on the SPX.  However, the very best short would be if this possible 5th wave up is truncated short by NOT taking out the high last Thursday. That means NO pierce of 24,008.99 or 2818.57, which I’d then be very bearish and would likely short the close.

Moving on…

Yesterday I closed out half my shorts and took a small long into today and possibly Wednesday as I felt we’d rally and I wanted some kind of hedge for my short positions. With the futures up nicely this morning that seemed to be a wise move. If we take out the high from last Thursday a short squeeze could get going, and I’d think hold my longs into Wednesday, and might even close out the remaining shorts? Not sure there?

Might keep them for wildcard plays in case the breakout doesn’t last long and is really a “fake out” instead. No way to know how many shorts are overhead. I’m 60/40 here on the bear side, thinking a pullback to 2500 SPX or lower is coming soon. But again, if I’m wrong I’ll flip to bull and start looking for the 3060 SPX area next with the thinking that we are in some kind of subdividing C wave up and that the FP on the SPY (and downside FP on the VIX) is the next target.

Do not rule this out as the Nasdaq was very strong yesterday, so something is fishy in the bull camp. They might be up to something sneaky on the bears here. Keep God and Jesus with you all time, as you’ll need them fighting SkyNet.