The Weekend Macro Update.
Every weekend I outline most probable macro scenarios, potential paths for upcoming months. In this update I will be talking about two of the three scenarios I explained in my previous macro update posted last weekend.
Many members of me premium chatroom keep asking me whether the bullish count we called the Santa’s Rally got invalidated by that sharp decline on Friday. The short answer to that question is “No!”.
Lets dive deeper into that Bullish scenario and outline a critical support for that wave count.
Let’s start from updating that bullish macro scenario 3:
As you can see, that scenario is still alive.
Under that scenario ES is working on a micro 1 up, 2 down starting point for a new rally in wave 3 up that should be able to stretch to 3,950, and after a pullback in a wave 4 down make another push up to 4,040.
We can count the Friday decline as a corrective structure of wave 2 down:
The critical support for that decline is 4,571. That means bulls should not allow bears to make even a spiky move under 4,571.
I want to show you a very very similar structure played out by GDX (gold miners ETF) in Oct 21 – April 22:
On that picture you can see that the low made by GDX around 28.95 in early October 21 became a super strong support that stopped the decline.
Bears tried to break under that level two more times but failed. That multiple failure of bears to break under support is what caused that crazy strong short covering rally in GDX that topped in April 2022.
In case of ES-mini the October low at 3,570 has a similar importance. - If bulls manage to defend that low and bears fail to produce a bearish follow through, their failure would become a foundation for the strong short covering rally described by the Bullish Scenario above!
Compare that structure in GDX to the structure of the decline in ES-mini that started off the Jan’22 top:
Now, lets review my primary bearish scenario that argues that bulls will fail to defent 3,571 support.
The Macro Bearish “3-3-3” Scenario.
I continue to consider the Bearish 3-3-3 (Double Three structure) as my preferred scenario:
This is how we can count the decline off the Jan’22 high in accordance with that fractal/ wave count:
Under that bearish wave count ES-mini will most likely drop to Mar 2020 pandemic lows under 3,000 next year:
Note that wave W down was composed of three waves (w) down, (x) up, (y) down. Most likely wave Y down would have a similar (w)-(x)-(y) structure. The first leg down labelled W down had its own two legs down, labelled (w) down and (y) down. Each of those waves had three wave micro structure.
I think ES may replay the a-b-c- down highlighted with the yellow box:
The -a-b-c- down off the high made last week would be counted as a subwave (w) of a wave Y down (the first leg down) inside a bigger wave (Y) down. The decline that started on Friday can be targeting 3,525.
That decline would undercut the early October low made at 3,571.
Once that low is undercut we can get another 100-150 point quick dead cat bounce in wave -b- up pushing price back over 3,571.
In conclusion:
Bulls still have chances to stop that decline and start a five wave up bear market rally into the end of 2022 year. To keep that scenario alive ideally they should not allow bears to make a new lower low of the year under 3,571. Because we deal with a corrective structure, if ES can drop slighly lower, lets say to 3,500 but then quickly recover back over 3,571 level that would allow bulls to start a five wave up Santa’s rally.
However, if a drop under 3,571 would be followed by a failed attempt of bulls to reclaim 3,571 level, that failure would confirm my preferred bearish count that argues that ES is going down to 3,300 by the end of October and under 3,000 next year.