ES Morning Update February 24th 2023

The bounce yesterday didn’t hold as the daily chart is continuing to put downward pressure on the market. The shorter time frame charts, like the 6 hour, got the bounce up to about 30 points positive before giving it back up by midday. Clearly we are going a little lower but I wouldn’t expect much more as those short term charts are too oversold to allow a whole lot more on the downside (short term ONLY).

At this point I think the move up (in the coming few days to weeks) to the FP on QQQ is off the table (more on that later). Do I think we’ll rally some next week?  Yes.  And I wouldn’t be shocked to see a late day move up today so that the close on the weekly chart isn’t too bearish.

Again, I think too much time passed after the high on 2/2 for this move down to be the start of the crash wave. Looking back through history you won’t find many times that the market choppy around the top for 2 weeks and then crashed. Tops usually only give shorts 3-5 days at most to take a bearish position. The long sideways movement up at that 4200 zone and then pullback to this current level does not indicate it’s an important high.  Therefore a slow decline for a higher low (then “the low” of 3502) is the most likely outcome.

We are still in the bearish period until mid-March, so basically until OPEX is the time frame for this decline to play out.  And if the wave count I have holds, then we should stay above the 3800 low area from last December where that 2 weeks of chop happened.  That low is my Tiny Wave B down and we are supposed too be in Tiny Wave C up now. It could last into June and should remain below the 4327 high in August of last year.

Here’s the chart with the wave count from Tuesdays post…

Personally, I do think the wave count will continue to stay intact as far as that prior high, which is Medium Wave B, and the 3502 low that is Small Wave 1 down inside Medium Wave C down.

But if we drop below the 3800 low area in the coming few weeks then the wave count from last October going forward would change. I already talked about it but lets cover it again. Lets say we rally up next week to hit the FP on the QQQ (doubtful) and make another lower high on the ES/SPX, like 4150-4180 for example, then the following two weeks we drop to 3700 or so… I would then move Tiny Wave B from it’s current position at the December 3800 low area over to this new low of 3700.

Here’s an example shown in RED on this chart…

From there we would start Tiny Wave C up, inside Small Wave 2 that could last into June before topping out. And if 4327 is taken out I’ll have to go back to the drawing board for the wave count as then the 3502 low would likely be labeled as Medium Wave A, which would mean that wherever we top out in June would be Medium Wave B (4400-4600?).

But, and this is a BIG BUT…

If that happens it’s very likely that the weekly chart will get that bullish cross on the moving averages that I covered on my Tuesday, February 21st recent update. There’s only been that one time in 2015-2016 where the market made a lower low after the daily chart had it’s moving averages cross.

The reason, as I explained in that post, was the the weekly chart back then did not get the bullish cross. Well if we make a low below 3800 in the next few weeks, and then rally up to above 4327, odds are good that we’ll hit 4400-4600… and I can tell you for almost certain, that if that happens, odds are very good that the weekly moving averages will cross over.

That means the odds of another lower low this year (without first making a new all time high) are zero percentage. I looked back to 1972 when the SPX started and there’s not a single time where the market made a new lower low after both the “weekly and daily” had the bullish cross of their moving averages (again, without a new all time high being hit first).

So if you are wanting to catch the crash move you do NOT want 4327 taken out at any time between now and June or so when the Seasonality ends the bullish period and goes bearish again.  (Remember that the bullish phase starts after about mid-March and lasts into mid-June).

We can still drop to 3700 and change the Tiny Wave B low date, from back in December around 3800, to say this coming mid-March, but we can’t allow the weekly moving averages to crossover, which means we need to see the market stay weak for several months before it makes some attempt to take out 4200 and run for 4327… where it MUST FAIL at.

Alright, now lets cover the FP on QQQ and why I now think it’s not going to get hit next week.  I think it’s a “marker” for the final high into June, where it should get pierced through to run the stops over 4200 but remain under 4327.

Here’s the old chart of IWM with the FP on it…

We can get close to hitting the FP on QQQ of 309.21 next week but we should not hit it.  Those moves up should all fail but keep us sheep looking for it to hit just like the IWM FP did to me back in November of last year.

Ok, for the short term the market is again oversold on the 6hr chart and lower time frames. So the downside is likely limited.  But attempts to rally just can’t seem to hold.  What I think is going to happen is that we’ll subdivide the Extra Tiny Wave 2 down into an ABC where we complete the A (Super Extra Tiny) today or did so yesterday.  Then the B up last into most of next week.  Finally the C down ends around OPEX or shortly after and is down near 3800 but above it.

Like to 3850 or so I’d guess.  That would keep the wave count intact and allow for Extra Tiny Wave 3 up to happen all of April, then 4 in May and 5 up in June.  That will be a lot of chop all that time as bears keep looking for a breakdown and bulls keep looking for a breakout… but neither happens.

Instead we stay in a tight range from roughly 3850 up to 4200 before that last pierce though it in June to hit the stops on the bears that are short from that zone.  That’s when the FP on QQQ gets hit and pierced too.  Then the market crashes in the Small Wave 3 down inside Medium Wave C down.

Here’s that chart…

The reason I think we subdivide now for ET2 is ONE: The Seasonality is bearish into March, and TWO: the MACD’s and RSI both look like they want to go lower.  So while they both might “pause” next week, which will give us the choppy move up from Super Extra Tiny Wave A (SET A) to Super Tiny Wave B, odds still suggests a move lower into mid-March is coming.

My thoughts are that it will tease the bears by getting into the 3800-3900 zone but that it will bottom somewhere in there to produce a higher low then the December 12th low of 3788.50 (ES) that marks the Tiny Wave B low (TB).  From there it rallies up for Extra Tiny Wave 3 (ET3) but runs out of steam (bears to squeeze) up near the recent 4208.50 high on 2/2.

The FP on QQQ should get close to getting hit but fall shy just like the November rally did with the FP on IWM.  This move up should be in April I guess, and then Extra Tiny Wave 4 down happens in May.  Who knows how deep it goes but it should make another higher high then wherever ET2 bottoms out at, which I’d guess around 3850 around the March OPEX.

On the chart I show it as a shallow pullback, but that’s just a guess.  I really don’t know about it.  I only know that for the wave count to continue working it should be a higher lower as any wave 4′s down cannot overlap the low of its’ wave 2.

When all is said and done we’ll likely see a big rising channel form, which will be a large bear flag on a monthly and weekly chart.  Anyway, that’s the big picture and some of the small picture too.  We just adjust as the market changes.  The short term waves are the hardest as they expand and subdivide, but we are looking good for staying on this primary wave count now and with some patience we could get a huge opportunity for a massive short in June.  Until then it looks really tough to trade.

Have a great weekend.