The Collective Case for the $6,000 Squeeze
In this piece I am going to present the confluence of factors that come together to imply a topping pattern in the SPX here may be preceded by a squeeze to 6,000.
Once Upon a Time
Let's take a step back in time and look at how the top of the 1929 rally formed.
We can organise the action into chunks. It all started with the 1910 - 1920 crashes. Around 50% easy and spaced around a decade apart.
Although these happened a long time before the depression crash started, they were important foreboders to it. Because, if you draw an extension fib from the high to the low of the 1920 crash range, the 1929 top came just passed the 4.23 extension.
In 2000 and 2008, the conditions of two 50% crashes spaced about 10 years apart repeated.
In the following decade, the condition of a hyper strong and persistent rally repeated.
In 2022, we filled the 4.23 of the 2008 crash - and this was the top (For a while).
So just to make sure we all get what happened there - the most sustained bear move there's been in since 2008 happened exactly on the 4.23 extension of 2008.
The DJI model would have us in the spiking out of the 4.23 and soon to enter into the reversal.
DJI would spike out the 4.23 by about 30%. A similar move in SPX would imply around 6,000.
The Major AB=CD
Back at the market low of November 2022, we sent out analysis discussing the possibility of a major AB=CD topping pattern.
The proposal here was all of 2021 had been legs A-B and after the correction was in we'd see a repeating of a move in the style of 2021 to complete the C-D legs.
At the time I gave this projected level as around 5500 area. I actually knew it forecast a little higher but a person could catch quite a lot of flak for making bull forecasts in late 2022 and I decided it may be more palatable if I slightly understated the targets.
All you have to do to project the AB=CD target is draw a trendline on the 2021 rally. Right click and duplicate and then drag that new trendline to the bottom of the 2022 move.
When we do this, it gives us a target area around 6,000.
The Deep Crab
While we were low in 2023 I started to discuss the bat spike out pattern.
We could technically still be in this pattern and a slight overshoot of it, but if you trade bat patterns a lot you know when they fail you have to be quick to pivot because they might make a deep crab pattern. Which means the 2.61 extension won't be the top, it'll be somewhere 3.20 - 4.23 fibs.
The 4.23 fib is 6,000.
The Bullish Butterfly
In the OP for this post I've drawn in the bullish butterfly we have pending at the current price level. A butterfly is a corrective pattern. Comes in two legs. The second one is always a scary looking breakout. What we have to date perfectly suits the properties of the bullish butterfly - which is one the reasons now is the time to consider the long for the squeeze.
A successful butterfly extends to the 2.20 fib of the full butterfly swings. This is norm for both bull and bear versions.
This 2.20 extension from a low here would be (I'm sure you've guessed) - around 6,000.
====
The case for the 6,000 squeeze is excellent.
From a purest TA perspective, everything looks perfect for a crash signal having started.
As someone who's made a lot of money shorting highs, I can tell you it's best to worry about squeezes. Everything is textbook perfect, but life isn't often that easy.
Squeeze thesis is heavily contingent upon a low being made above 5370.
If that breaks, I see no reason to be looking for supports before 5100.
Last week I did pick up various call debit spread options where I bought different deep OTM calls and short the 6000 area calls (Since this is where I'd want to bank profits anyway).
If I am right, it should not be subtle. Bears should be baited (Which they have been) and then be busted.
If it's not obvious, it's probably not happening. Stops under 5370.
Once Upon a Time
Let's take a step back in time and look at how the top of the 1929 rally formed.
We can organise the action into chunks. It all started with the 1910 - 1920 crashes. Around 50% easy and spaced around a decade apart.
Although these happened a long time before the depression crash started, they were important foreboders to it. Because, if you draw an extension fib from the high to the low of the 1920 crash range, the 1929 top came just passed the 4.23 extension.
In 2000 and 2008, the conditions of two 50% crashes spaced about 10 years apart repeated.
In the following decade, the condition of a hyper strong and persistent rally repeated.
In 2022, we filled the 4.23 of the 2008 crash - and this was the top (For a while).
So just to make sure we all get what happened there - the most sustained bear move there's been in since 2008 happened exactly on the 4.23 extension of 2008.
The DJI model would have us in the spiking out of the 4.23 and soon to enter into the reversal.
DJI would spike out the 4.23 by about 30%. A similar move in SPX would imply around 6,000.
The Major AB=CD
Back at the market low of November 2022, we sent out analysis discussing the possibility of a major AB=CD topping pattern.
The proposal here was all of 2021 had been legs A-B and after the correction was in we'd see a repeating of a move in the style of 2021 to complete the C-D legs.
At the time I gave this projected level as around 5500 area. I actually knew it forecast a little higher but a person could catch quite a lot of flak for making bull forecasts in late 2022 and I decided it may be more palatable if I slightly understated the targets.
All you have to do to project the AB=CD target is draw a trendline on the 2021 rally. Right click and duplicate and then drag that new trendline to the bottom of the 2022 move.
When we do this, it gives us a target area around 6,000.
The Deep Crab
While we were low in 2023 I started to discuss the bat spike out pattern.
We could technically still be in this pattern and a slight overshoot of it, but if you trade bat patterns a lot you know when they fail you have to be quick to pivot because they might make a deep crab pattern. Which means the 2.61 extension won't be the top, it'll be somewhere 3.20 - 4.23 fibs.
The 4.23 fib is 6,000.
The Bullish Butterfly
In the OP for this post I've drawn in the bullish butterfly we have pending at the current price level. A butterfly is a corrective pattern. Comes in two legs. The second one is always a scary looking breakout. What we have to date perfectly suits the properties of the bullish butterfly - which is one the reasons now is the time to consider the long for the squeeze.
A successful butterfly extends to the 2.20 fib of the full butterfly swings. This is norm for both bull and bear versions.
This 2.20 extension from a low here would be (I'm sure you've guessed) - around 6,000.
====
The case for the 6,000 squeeze is excellent.
From a purest TA perspective, everything looks perfect for a crash signal having started.
As someone who's made a lot of money shorting highs, I can tell you it's best to worry about squeezes. Everything is textbook perfect, but life isn't often that easy.
Squeeze thesis is heavily contingent upon a low being made above 5370.
If that breaks, I see no reason to be looking for supports before 5100.
Last week I did pick up various call debit spread options where I bought different deep OTM calls and short the 6000 area calls (Since this is where I'd want to bank profits anyway).
If I am right, it should not be subtle. Bears should be baited (Which they have been) and then be busted.
If it's not obvious, it's probably not happening. Stops under 5370.
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