ES Morning Update April 20th 2022


All day yesterday I watched the grind higher and thought to myself... "What if the low is already in?", and why did I think that you ask? Many reasons actually. One is the record low in bulls and of course record high sentiment of bears. In fact it's as negative out there as in March of 2020, and that of course produced a huge rally afterwards.

Another thing bugging me about the pullback we've had since the 4631 high of Medium Wave 1 is that we've pulled back now around 50% for this Medium Wave 2... so what more could I ask for there? I mean that's like a perfect pullback zone... a "text book" move. Then there's the fact that I missed shorting the pullback as I kept thinking it would do a nice clean ABC down, and it didn't of course. I was looking for that perfect B wave bounce to short for the C wave down, but it never came. I see 7 waves in total from the 4631 high down to the 4355 low, which I honestly don't know how to count them? They are of course Small Waves and probably some Tiny Waves inside them too, but as I've said many times... "trying to figure out the smaller day to day waves is super hard".

So, should I really care what they are at this point? NO is the answer of course as I don't trade them but instead try to catch the bigger waves, like the Medium Waves of course. I got some of the Medium Wave 1 up, missed the Medium Wave 2 down completely and now I'm focused on catching the Medium Wave 3 up... which I now think has started. Just the way the market moved yesterday makes me think we are in the early part of it now.

You see, from what I've noticed over the past 10+ years is that wave 3's are "grinder" waves most all of the time. Meaning they don't have much volume and they don't move too fast or too many points in any given day.

They just have a steady move up for many days in a row on light volume, and then from time to time a large day up to hit some stops on the bears. That's usually where they pause for awhile and then continue to grind higher after enough new bears short it. It's the wave 1's up off a major low and the wave 5's that have the bigger volume. Like the move up off the March 2020 low into the September high to make Large Wave 1 had the large volume. Then when the October low came in that year and the Large Wave 3 up started the volume died down and the steady grind higher happened.

In fact in 2021 the most we saw for pullbacks were these 3-5% moves that only lasted a few days to a week maybe, and then the grind higher continued. Based on the way the market moved yesterday I think we are in the Medium Wave 3 right now. I know that in yesterdays post I was looking for a B Wave bounce (Small B Wave inside Medium Wave 2 down) to hit one of the possible FP's I have on the SPY, and then we'd drop for the Small C Wave... I now think that is wrong.

If we get some BIG volume day up (today, Thursday, or Friday) then I might change my mind on that as then I could see that as capitulation on the bears. Meaning the market wouldn't have any support at lower levels from those bears and another big drop could happen.

But if we just continue to "grind" higher day by day with intraday small pullbacks to "cool off" the short term overbought charts, then I think we will continue higher inside what will likely turn out to be Medium Wave 3 up. The large "Inverted Head and Shoulders" pattern projects a high of 5161 if it plays out... which is 806 points up for Medium Wave 3 from the 4355 current low of Medium Wave 2 down. Medium Wave 1 up was roughly 500 points, and oddly 1.618% of that is roughly 800 points... which is a normal calculation for any wave 3 up in comparison to the wave 1 up.

As you can see I have many reasons here that make me think we have bottomed and every move up is just going to bring in more bears that are trying to "top call" the market, which will just keep using them as fuel to go higher until they all give up and flip to become bulls.

I think every can agree that there will be bears shorting the double top level, so there will be more fuel there to squeeze higher.

And if we hit 5000 they will certainly short there as it's a big even number level that will draw in a lot of bears... which again will be fuel to go up more. Maybe by the time we reach 5161 they all become bulls and start calling for 5400 and 5500? I don't know but then again... no one really does. You just have to throw your dart and hope you hit the bulls eye I guess. Have a blessed day.

P.S.  As I'm sure you know Netflix got crushed afterhours yesterday with its earnings report, but the Nasdaq (and SPX) has fully recovered with only a small sell off from it.  That's another sign that a bottom is in as I've seen this pattern (trick) before.  It's where they sell off the market for awhile (weeks or months) and then at the end of the correction they conveniently release all bad data (earnings on stock, jobs numbers, consumer confidents number, unemployment numbers, etc...).  It's a well timed event that causes a brief spike lower that gets bought up because the market was already oversold.  Coincidence I'm sure.  🙂

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