It's Not My Fault ...

It's theirs. In the 1990's I invented my own proprietary sentiment indicator and have religiously updated it every week for which the data was available. Luckily, the data source I used remained stable over that time, so no changes were required to the formulas or to the data sets used. Here is what the weekly data show in the chart below.

For 2026, the Weekly Bullish % now stands at 64.8% bulls, across a wide swath of investors from professionals to newsletter writers to small investors. It was not higher at any point in 2025. This level took a big 3-point jump in this past week, which is no small feat. And, in pure simple terms, investors as a collective group are now more bullish than they have been at what is labeled the "B Wave High" which is the 2007 stock market top, before the 2008-9 debacle. Can this measure go higher? It can. People can feel what they wish. And, certainly, sentiment is currently lower than the 68.9% registered at what is labeled the "Minor Wave 3 High" - just before the peak in 2018. Can sentiment go there? It can. Can it go higher than that? It can. Still, it should be clear from the data comparison that we are reaching rarefied air and that risks continue to abound.

Along with a simple percent bullishness, there used to be a sentiment indicator called The Magazine Cover Indicator, which was said to fire when a number of prominent magazines (Time, Newsweek, Barrons, etc.) featured bullish stock market stories on their covers. Of course, most of these magazines have now gone from print to on-line presence, both reducing the effectiveness of their impact and of that of the indicator. Still, we will note that the Time Magazine 2025 Person of the Year, was, of course A-I, as below on its cover.

And you know that just recently, possibly as a result, the A-I stocks (or a lot of the Mag7, anyway) have been flailing and not yet making new highs along with the rest of the market. How, could it be worse than this? 

Easy. 

Below is just a mere sampling of what you can see when you scour social media even slightly and think about what you are seeing and what they are presenting you with.

Apparently almost everyone is now a self-styled investment guru willing to teach you how make money in stocks or avoid fees, or how to live a comfortable retirement life. No problem, right? The kids in the upper left and lower left lived through major bear markets, right? Not.

So be cool. Be cautious. Be patient and be flexible. In the words of some of the old-timers on Wall Street, 'the boat is getting a little heavy on one side'. It's not my fault. It's theirs. I'm just showing some evidence. It happens almost every time. People get excited when they win or make a lot of money. And the opposite will be true at a bear market bottom.  Sentiment will decidedly go the other way - like the 25.3% bullish in the first chart which occurred at or near the "C Wave Low" of the 2009 bear market bottom.

And to be fair, there is a problem with sentiment. It often precedes a top (or a bottom). That means that even though opinions are getting stretched right now, it doesn't mean people will head for the exits tomorrow. But, like a passenger strapped in on a jet airplane, while you don't want to prematurely open the cabin door and jump, you might just want to amble around the plane a bit - like if you're surveying where the lavatories are - and at least check out how many exits there are, where they are located, and how they operate without being obvious, of course. Because nobody likes a fidgety seatmate. Right?

Tomorrow is not scheduled to be a cash stock market session as it is the MLK Holiday, although there may be some futures trading hours. Have an excellent rest of the day, weekend and holiday. 

TraderJoe

A Couple of Wedges

As we have shown over the last several days, the ES futures currently appear to be wedging in an up trend. It is difficult to say that a wedge is over until key lengths are exceeded lower.

Yesterday's break of the initial wedge line still looks like a three-wave affair. So, the lower wedge line has been redrawn. Two key lengths to watch are the lengths of the 02 Jan down leg, and the 18 Dec down leg. Only if these are exceeded might it possibly have downward implications.

GOLD (futures GC) have been wedging on the two-hour chart, and the wedge was recently broken lower. Key lengths need to be monitored here, too. A GC 2-hr chart is below.

Have an excellent start to the day.

TraderJoe

Lots of Things

A lot of things are going on the ES daily chart which are worth pointing out. The first is that the daily slow stochastic has (at least temporarily) lost its embedded status. Along with this, price has struck the 18-day SMA, as below.

ES Futures - Daily - Line in the Sand Hit

Another observation is that the swing line indicator with today's lower low has turned lower. Two items to confirm are 1) whether the close remains below the 18-day SMA, and 2) whether the daily slow stochastic remains below the 80 level or not.

A further item to note is that the daily Bollinger Bands are curling in and beginning to wrap around price.

From an Elliott Wave perspective, can the diagonal be over? Yes. But can it also form a diagonal with deeper legs - like 62% or more - as we pointed out earlier? This is also possible with currently about equal odds.

Have an excellent start to the day.

TraderJoe

A Rare Bird

The chart below, the daily chart of the ES futures (roll-over contract) shows where one old Wall $treet adage comes from. That adage is, "IF the bears have Thanksgiving... then the bulls will eat Christmas dinner." As you can see from the chart, prices declined before the typical third week in November (although Thanksgiving was a little later this year on the 27th instead of the more typical 23 - 25th). Then, they rallied into Christmas.

And prices continued on with the Santa Claus rally into the New Year. Hopefully, the turkey was not undercooked, or half-baked! Keep in mind, it is pretty rare to get an eight-month rally without so much as a 38% retracement.

But now, the Christmas ornaments (the red & green fractals) can outline some of the risks involved in this up wave. Yes, the wedge can get wedgier. But, the down (red) fractals can break, too.

Have an excellent start to the evening,

TraderJoe

The Risks are Piling Up

The OHLC version of the chart in the prior post for the weekly ES futures is below. Yes, there are ways that higher highs can be made. But the risks are piling up. Even a 38% retrace shown is almost 1,000 ES points from here. And deeper retraces are certainly possible.

Besides retrace risk, there is also the risk that the entire upward movement is over. If the up wave sequence is an A,B,C instead of the five waves shown, then there is a (likely lesser) risk that Intermediate wave (4) could be undercut.

For the short term, it is suggested to pay close attention to the 18-day SMA, and whether price closes above it or below it on a daily basis.

Have an excellent start to the evening,

TraderJoe

Mikey Likes It!

Hey Mikey. With all apologies to the Life cereal commercial from the 1980's, we noted in the prior post we were not a huge fan of indicators like the RSI, or PPO - which are implying a decline - for counting waves. There are several other factors that currently say, "well if a decline does happen, it may still not be the onset of the bear market". One of those factors is the NYSE Advance/Decline Line ($NYAD). Readers of this blog should look up the cumulative value of the indicator if they are interested, but it has recently reached a new high in the last couple of weeks. I have written several times before that major bear markets have rarely started with such little divergence indicated. With that in mind, we must still allow this count of the extended first wave in Minor A. The count is shown below in the weekly closing chart of the New York Composite Index (NYA).

NY Composite Index - Weekly - Minor A

In the extended first wave count, the third wave is shorter than the first, minute ⓘ. So, as long as the fifth wave, minute ⓥ, stays less than the third wave, this count can be valid. We will note that while the Sep - Nov period brought some level of decline, it was quite meager. It could be, but just doesn't seem like, a Minor B wave that really causes significant market vexations, like, say, a long in time Minor B triangle. So, maybe that decline is just a fourth wave. Cautionary note: while this down wave does not have closing overlap, it does have a tad bit of intraday overlap.

None of this completely discounts what the RSI and PPO are saying. There may be a significant decline ahead soon. Sentiment is still fairly overheated. And, for example, if Minor B should turn out to be a triangle, a three-wave ⓐ wave lower could be the most dramatic of the lot. It's just that this up wave count may not be the final one of the bunch. Perhaps a Minor B wave will provide the necessary $NYAD deterioration to create a significant divergence.

So, we remain flexible, calm and patient going into the New Year. We remain on notice for significant declines, and nothing to the downside will surprise us. If a triangle does occur, it might turn out to be a great range-trading opportunity. We shall see.

This is the second post since Wednesday. Have an excellent rest of the weekend and start to the New Year.

TraderJoe

They Don't Like It

I'm talking about two indicators. I'm not a real big fan of indicators but do use the Elliott Wave Oscillator as a guide in wave counting. In this post, I'm primarily referring to two indicators - the RSI or Relative Strength Index, and the PPO or Percentage Price Oscillator, although the price is shown using the Zigzag indicator just for clarity and accurate terminal points.  The first chart clearly shows that the RSI does not like this up wave. It is currently diverging.

The second chart below shows what the same chart provides in terms of the PPO oscillator.  It is also diverging at this time.

Both charts seem to be sending the same message. In terms of these indicators, "it's time". The contracting diagonal, if it is one, should end soon. It is hard to ignore such a message. But keep in mind these are log scale charts. They 'just barely' work on the ES/SPX, although they work better on the Dow.

Looking at the recent action, we must still be incredibly flexible and allow two possibilities for a Minor C wave. The first one is shown in the ES 8-hr chart, and the trend lines tend to indicate a diagonal may be in progress.

We note this chart can be interpreted as three-wave sequences. There is now overlap. Price is along the lower trend line. It could break it a tad but must not go beyond 6,835 in order to keep a diagonal going. Yes, it is also possible to get a nested wave sequence up, if price does not go below 6,385.

But this second ES 8-hr chart shows another alternate for an upward diagonal. This one would have truly wild swings with at least a 62% retrace for the second wave.

The Principle of Equivalence requires that we cool our jets, try not to be over-reactive, and look at reasonable potential alternates provided that degree labeling definitions are not compromised. 

Still, one of the problems with an impending bear market, where the majority of the shorts have thrown in the towel is not to get caught on the "Slope of Hope", playing for up waves when they don't arrive.

So, we are still just patient calm and flexible. We see clear alternatives. We will watch for them. But the risks are piling up (in terms of what the RSI and PPO are saying), and we don't want to ignore them.

Have an excellent start to the New Year.

TraderJoe