Un-blowing a Bubble

The bubble didn't exactly 'pop' yet. But, the FED knows what you know. It is unsustainable for the U.S.A. to carry $28.4 Trillion in debt - more than 100% of GDP - in the long run. History shows (according to Ray Dalio) that countries that undertake such an endeavor wind up actually needing an undertaker. So, the U.S. Federal Reserve trotted out St. Louis Fed President James Bullard to say he might see a rate increase sooner rather than later. Of course, they do this early in the morning on a Friday, when people might have left town for their new holiday - Juneteenth Day. I'm all in favor of the holiday: couldn't they have announced it sooner? Don't think there was anything spontaneous about this at all. The FED knows who will speak, when they will speak, and what they will say.

Of course, we were expecting stock prices to drop in the (c) wave of a triangle - at least. They did. As the daily ES chart shows below, prices got down to the 50% retrace level of the prior up wave.

ES Futures - 1 Day - 50% Retrace So Far

 

The Dow Jones Industrial Average on-the-other-hand exceeded the May low, even lower. If the Dow was in a Flat wave, then both can be the (c) wave down. The ES futures got below, and closed below, their lower daily Bollinger Band. Nothing says price can't go lower. The problem with triangles, and the diagonal we discussed yesterday is that they can't be called until all five of their waves are in place.

So, we will have to monitor to see how much more downside there is to these waves. A 62 - 78% retrace in the ES futures would not be unreasonable. But, more than that will call into question a triangle.

Unfortunately, for our part, while we might try to parse the nature of some short term waves, we can not begin an up count - not even the (d) wave of a triangle - until price closes up back over the 18-day SMA. That's right. Right now, the price bias is down. While the swing line is not in a trend (still on a higher high and lower low), the daily bias provides caution until it does not.

The daily slow stochastic has not curled up, yet, and so there could be more down movement. There is no good hourly divergence downward to work with, yet, so there may be more follow-through on Monday. If you held me to it, with y = w, I would say the current move is a double zigzag lower, as below on the hourly chart.

ES Futures - 1 Hr - Double Zigzag Lower

There is nothing that says that a triple zigzag could not ultimately resort, but supposedly the triple is much more rare, so one has to - as always - keep probabilities in mind.

Have a good start to the weekend.

TraderJoe