This clearly made up scenario is based on a few different qualitative inputs, assumptions, and historical analogues.
1. Rising megaphone since November continuing its pattern and eventually breaking
2. Seasonality: mid year selloff + double top in the fall during end stage bull markets (see 2000, 2007, 2018, Bitcoin in 2013 and 2017)
3. 1919 price action (after the Spanish Flu) basically followed #2. Both the 4300 upside target and the 2800 downside target happen to match the % gain of the market in 1918-20 from early spring through the 1920 recession. There are some who have argued the Spanish Flu comparison in the market since the March 2020 lows at a time when nearly all "experts" were advising not to buy. Let's just assume for now that we'll continue the pattern unless proven otherwise.
4. Once VIX has formed a stable base, it generally breaks much higher off that base before ever moving lower (see linked idea from several months ago). That means 19.5 is about as low as we can expect VIX to go until the next major bear market. VIX approached 20 today which also confirms the megaphone pattern and a possible quick move up to the 4050-4090 range.
Trade ideas:
A. Short the top of the megaphone (if we get there) which right now is about 4050-4090
B. Buy up any dips that don't break the bottom of the megaphone in the next few months.
C. Try to short 4300 if we get around there in May, and RSI divergence continues, and VIX has held its 19.50 base.
D. Start looking to buy a significant mid year dip of 15% or more. Remember, most bull markets double top or head and shoulders, or almost achieve the previous high - yes, even 1929. Even if the party is over, buying aftter the first major dip is still usually a good idea.
1. Rising megaphone since November continuing its pattern and eventually breaking
2. Seasonality: mid year selloff + double top in the fall during end stage bull markets (see 2000, 2007, 2018, Bitcoin in 2013 and 2017)
3. 1919 price action (after the Spanish Flu) basically followed #2. Both the 4300 upside target and the 2800 downside target happen to match the % gain of the market in 1918-20 from early spring through the 1920 recession. There are some who have argued the Spanish Flu comparison in the market since the March 2020 lows at a time when nearly all "experts" were advising not to buy. Let's just assume for now that we'll continue the pattern unless proven otherwise.
4. Once VIX has formed a stable base, it generally breaks much higher off that base before ever moving lower (see linked idea from several months ago). That means 19.5 is about as low as we can expect VIX to go until the next major bear market. VIX approached 20 today which also confirms the megaphone pattern and a possible quick move up to the 4050-4090 range.
Trade ideas:
A. Short the top of the megaphone (if we get there) which right now is about 4050-4090
B. Buy up any dips that don't break the bottom of the megaphone in the next few months.
C. Try to short 4300 if we get around there in May, and RSI divergence continues, and VIX has held its 19.50 base.
D. Start looking to buy a significant mid year dip of 15% or more. Remember, most bull markets double top or head and shoulders, or almost achieve the previous high - yes, even 1929. Even if the party is over, buying aftter the first major dip is still usually a good idea.
Comment:
Nothing is confirmed yet, but the megaphone is in danger of breaking down without reaching its natural target. 3740 (that rising trend line) must hold, or bulls are in huge trouble.
Trade active:
Got in range of target (4090). This could be the top for now.
