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ES Morning Update February 21st 2023

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It’s time to revisit the big picture wave count. My primary count is still that the first A wave down ended at the June low last year, which I’m labeling as Medium Wave A down. Then Medium Wave B up topped and ended at 4327 high on August 16th of 2022. If that level is taken out then the wave count is invalidated… that’s “if” it’s more then just a quick pierce.

I mean we have to hit 4400, 4500 or 4600 to really kill that wave count, which is possible I guess but not right now. Maybe after the March OPEX we see a rally up that high… I don’t know? But from a Seasonality point of view the bullish period doesn’t start until then and right now the masses (dumb money) are still super bullish, which when you combine that with bearish Seasonality into mid-March you have a market that isn’t likely to go up much.

It should be going down into that period, but how much I just don’t know? They seem to be holding the market up right now, but I don’t know how or why. Possibly it’s the algo’s that see the market as bottomed already since it has successfully made the bullish cross with the moving averages and had held it for quite awhile now.

While there’s some validity to that fact it’s not any guarantee that it will continue and that the market is off to put in a new all time high. For example, you can look back to 2015 to see that the 50 day simple moving average crossed the 200 day simple moving average in December that year and the market rolled back over to put in another lower low in January of 2016.

I’m sure everyone thought the low was in back in August of 2015 after they saw those moving averages cross back up later on, and who wouldn’t think that as the market rallied back up in November of 2015 to just come within a few percentage points of reaching the all time high that year.

Then it chopped up and down for almost two months into late December making a nice bull flag. But then it failed and dropped to a new lower low, so you can’t say that just because there’s a bullish cross with the 50 and 200 day simple moving average that we are guaranteed to make a new all time high, as that’s just not the case.

Does it work the majority of the time? Yes, it does. I looked back in time on the SPX to 1962 and I couldn’t find any other times it had failed. I found some times that were super close to making a bullish cross and then a new lower low was put in, but no more that actually did cross cleanly.

So what was different about that 2015-16 period you ask… the weekly moving averages is the answer. Looking back again to 1962 when the SPX started I can’t find any period where once the 20 week simple moving average crossed the 50 week simple moving average that there was a lower low. If has a perfect record… 100%.

But in the 2015-2016 period that bullish cross never happened, and it still hasn’t happen today either. If it does then the odds of a lower low (the 3000 zone that every bear is looking for) are slim to none and slim just left the building.

Meaning we will have super high odds of a new all time high prior to any new lower low… if that happens? Currently the 20 week SMA is at 3920.88 as of Fridays close, and 4079.09 for the 50 week SMA. So, the real test for the bulls will be for them to use the mid-March to June period, where the Seasonality favors them, to make that bullish cross happen.

If they can, then it’s over for the bears until after a new all time high is put in. If that doesn’t happen then the bears still have a chance.  And what I would then expect to see is a period of a range bound market during that bullish Seasonality period. It would be from the 3502 low up to the 4327 high that would keep the current wave pattern intact.

That’s a big range, but the market could certain stay inside it for the next 4 months if it wants to. Then around mid-June the Seasonality period turns bearish into early July and neutral until September, and bearish again into October. Then of course bullish into the remained of the year.

My thoughts on this is that everyone will be looking for the usual crash to happen in September or October where many do. But if the market goes sideways for 4 months into June, and keep that bullish cross from happening, then I have to think we’ll have that last lower low (the crash move) happen into July.

It’s a “time thing” basically as I just don’t see the market holding up into September or October.  After 4 months of a range bound period I think it will finish every subdividing wave pattern possible to carve out all the waves that commonly happen before the crash wave.

What are those waves you ask?  Here’s my best guess…

On the short term, I think we chop a lot this week and go nowhere.  It’s a shorten week due to the holiday yesterday so I’m not expecting a lot.  Early this week I do think we’ll go up to hit the FP on the QQQ at 391.21 that I posted on Friday.  We’ll see.  Have a blessed day.

P.S. In case you haven’t figured it out I no longer think we crash into early March. I mentioned it in other posts last week that I thought too much time has past for the crash to still be “on” as you just don’t give the bears 2 weeks to short it. The average is maybe 4-5 days at most, and we are over 2 weeks now, so this means the waves are subdividing as I shown in the chart here. The wave count is still the same in the bigger picture but the short term has more subdividing waves that will skip this March period and go out into the June/July period where another crash could happen. I thought it would happen into March but odds are super low now, so I have to adjust, which means I need to look out to the next possible period where it could happen. That’s into June/July, so while I’d love to see one happen into March I just don’t think it will.


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