The more I observe price action and the more I analyze charts, the more I feel that although the markets are absolutely primed for a major and inevitable correction towards the pre-COVID highs, which for Nasdaq and SPX are far under the June lows, we're on the cusp of a preceding bear lynching.
In my recent SPX call, I had forecasted a trip to the 3,8xx range early on in this Labor Day week in anticipation of everyone's favorite global market manipulator Federal Reserve Chairman Jerome Powell speaking on Thursday with FOMC and an inevitable rate hike looming on the 21st:
SPX / ES - Bull Whips and Bear Saws
What I had thought likely to happen was an early dump, followed by a pump into his speech, and then the beginning of our correction cycle.
And yet after observing the price action of Bitcoin and Ethereum over the weekend (significant since they tend to lead or match with the SPX since they have a CME futures market) in addition to Monday's price action when NYSE/TSX were closed for the weekend and today's strangely simple dump-into-accumulation pattern, I have since been forced to revised my theory.
I now believe that Big Jerome's talk on Thursday, September 8 is actually going to be used to propel the markets back to areas close to August highs.
Taking a look at my calendar, if this theory is true and Jerome was to pump it, you'd have eight trading days to do so until FOMC.
Afterwards, counting FOMC, there's still eight days left in the month to crash this plane straight into the side of the mountain all the way below July's lows as well.
What's the fundamental thesis for my theory? It's simple. One is that they've been selling a lot of VIX-enhanced puts for the last week and a half and a bull run will drop VIX back to like 19 and all those puts that they sold with high implied vol for monthly OpEx will expire worthless.
The second is that with VIX crushed, smart money can buy a large amount of October and November puts on the cheap for when we revisit 10,000 Nasdaq/SPX 3,500.
And the third is that with the USD going rampant, Wall Street Journal reported today that foreign buyers are going full ape risk-off trying to buy US equities because their national currencies are collapsing.
All on its own, perhaps it doesn't matter, yet consider that USDJPY is printing 143 and then Yen is the most worthless its been in 24 years:
Japan is most significant since the Bank of Japan pays no yield on bonds and so all that old, generational money props up the US equities market as it seeks returns elsewhere.
Also, the Bank of Japan's next meeting, where it really may have to finally abandon Yield Curve Control, is on the same day as FOMC: Sept. 21.
If BoJ is forced to raise their rates, finally, to try to save the Yen, and the Federal Reserve does something fun like 100 bps at the same time, you really are going to see the market crash with astoundingly violent force.
And if something this exciting were to happen, of course, as a Wall Street sociopath and a proper market maker, you would want prices to be high in advance, to take full advantage of the foreign market brought to you and the delightful opportunity to throw everyone off balance.
For all of this to work out will require that we aren't yet at the bottom. And we're not. Instead, I believe the pattern will be some kind of support or double bottom or stop sweep established around one of the June pivots @ ~11,500.
This is under the psychological 12,000 level and also doesn't totally break market structure yet.
Then, to rip it in the other direction back to a reasonable level will require a number roughly like 13,400. I do not believe they will take out the August high because what will unfold is ultimately a bull trap and not a true bear squeeze or a trend reversal.
Now you might think to yourself that this is too much volatility. This kind of pump is too far away, too fast. And this notion is really very reasonable.
However, I want to point out that Nasdaq did better than this in March, where it ran 2,300+ points in 11 trading days. Actually, counting the first eight trading days only, it more or less made 2,000 of those points.
And so, you all need to be careful. If this is totally wrong and you buy the bottom and it dies, well, it will hurt, but not so much if you keep your risk low. There will be good chances to buy a healthy gap up.
Where you're likely to get hurt is bottom shorting.
But the ones who are really going to get skinned are the FOMO crowd and the people who have no idea what time it is.
For a few days you will have returns. And for one weekend in the middle of September, as the autumn air chills, you'll be able to enjoy martinis at the bar, feeling like you've made it back to Tesla $1,000 Apple $200 and are thinking about what to waste your future winnings on.
But what comes after the Party is over will be like waking up from a dream and finding yourself inside of a concrete nightmare.
Because the drive down this time won't be like January-May was. It will gap down and the Terminator will be deployed, and hard, a lot like the COVID days.
But perhaps this time the Fed won't have any QE to save you with, because the intention is not to save you and keep the old Party going this time, it is to create a crisis and then save you from that crisis with a new Party composed of their technocratic paradigm of super communism.
In my recent SPX call, I had forecasted a trip to the 3,8xx range early on in this Labor Day week in anticipation of everyone's favorite global market manipulator Federal Reserve Chairman Jerome Powell speaking on Thursday with FOMC and an inevitable rate hike looming on the 21st:
SPX / ES - Bull Whips and Bear Saws
What I had thought likely to happen was an early dump, followed by a pump into his speech, and then the beginning of our correction cycle.
And yet after observing the price action of Bitcoin and Ethereum over the weekend (significant since they tend to lead or match with the SPX since they have a CME futures market) in addition to Monday's price action when NYSE/TSX were closed for the weekend and today's strangely simple dump-into-accumulation pattern, I have since been forced to revised my theory.
I now believe that Big Jerome's talk on Thursday, September 8 is actually going to be used to propel the markets back to areas close to August highs.
Taking a look at my calendar, if this theory is true and Jerome was to pump it, you'd have eight trading days to do so until FOMC.
Afterwards, counting FOMC, there's still eight days left in the month to crash this plane straight into the side of the mountain all the way below July's lows as well.
What's the fundamental thesis for my theory? It's simple. One is that they've been selling a lot of VIX-enhanced puts for the last week and a half and a bull run will drop VIX back to like 19 and all those puts that they sold with high implied vol for monthly OpEx will expire worthless.
The second is that with VIX crushed, smart money can buy a large amount of October and November puts on the cheap for when we revisit 10,000 Nasdaq/SPX 3,500.
And the third is that with the USD going rampant, Wall Street Journal reported today that foreign buyers are going full ape risk-off trying to buy US equities because their national currencies are collapsing.
All on its own, perhaps it doesn't matter, yet consider that USDJPY is printing 143 and then Yen is the most worthless its been in 24 years:
Japan is most significant since the Bank of Japan pays no yield on bonds and so all that old, generational money props up the US equities market as it seeks returns elsewhere.
Also, the Bank of Japan's next meeting, where it really may have to finally abandon Yield Curve Control, is on the same day as FOMC: Sept. 21.
If BoJ is forced to raise their rates, finally, to try to save the Yen, and the Federal Reserve does something fun like 100 bps at the same time, you really are going to see the market crash with astoundingly violent force.
And if something this exciting were to happen, of course, as a Wall Street sociopath and a proper market maker, you would want prices to be high in advance, to take full advantage of the foreign market brought to you and the delightful opportunity to throw everyone off balance.
For all of this to work out will require that we aren't yet at the bottom. And we're not. Instead, I believe the pattern will be some kind of support or double bottom or stop sweep established around one of the June pivots @ ~11,500.
This is under the psychological 12,000 level and also doesn't totally break market structure yet.
Then, to rip it in the other direction back to a reasonable level will require a number roughly like 13,400. I do not believe they will take out the August high because what will unfold is ultimately a bull trap and not a true bear squeeze or a trend reversal.
Now you might think to yourself that this is too much volatility. This kind of pump is too far away, too fast. And this notion is really very reasonable.
However, I want to point out that Nasdaq did better than this in March, where it ran 2,300+ points in 11 trading days. Actually, counting the first eight trading days only, it more or less made 2,000 of those points.
And so, you all need to be careful. If this is totally wrong and you buy the bottom and it dies, well, it will hurt, but not so much if you keep your risk low. There will be good chances to buy a healthy gap up.
Where you're likely to get hurt is bottom shorting.
But the ones who are really going to get skinned are the FOMO crowd and the people who have no idea what time it is.
For a few days you will have returns. And for one weekend in the middle of September, as the autumn air chills, you'll be able to enjoy martinis at the bar, feeling like you've made it back to Tesla $1,000 Apple $200 and are thinking about what to waste your future winnings on.
But what comes after the Party is over will be like waking up from a dream and finding yourself inside of a concrete nightmare.
Because the drive down this time won't be like January-May was. It will gap down and the Terminator will be deployed, and hard, a lot like the COVID days.
But perhaps this time the Fed won't have any QE to save you with, because the intention is not to save you and keep the old Party going this time, it is to create a crisis and then save you from that crisis with a new Party composed of their technocratic paradigm of super communism.
This is especially true considering AAPL, which really leads the Nasdaq, trades bearishly.
Perhaps we are being set up to make a new low so that we can do the melt-up-into-FOMC-because-'everyone knows it was going to be 75bps' thing