I love you 5000?

The markets have entered a bout of volatility at around these levels and time period. Euphoria is in the air on the back of new highs achieved as well as the narrative of a soft landing really catching hold. Data supports this soft landing approach and that is why I am still putting that on the table to be pragmatic despite my gut feelings telling me that a recession is still a big possibility. Inflation is however the cat in the bag and that shows with the market sell off with the slightest inclination that inflation is not done and dusted. 

The market picked itself up rather well however post that sell off to rally back strongly with the broad market index reclaiming 5000 in the process. So where are we heading in the midst of this up and down? I have advocated towards a defensive approach even as we chart new highs and I still stand by my views. 

We have seen this wave of euphoria before, soft landing as well as claims of a new bull market and history shows again and again how blindsided the bulls can get and how rapidly the market can just sell off. So I am not willing to take the risk having lived through the turn of the millenia (dot com 2000!), then 2003 (SARs!), then the great recession. Once bitten, twice shy they say. So not taking the risk no matter what everyone seems to be saying. Its always the same noise! Now we are here, I recognise that same noise again. And that sweet smell of euphoria. Its just too distinct. I used to think 'ah it will be different this time round...' and then ignore the technicals despite them screaming 'caution ahead!'.

Now the technicals are really screaming 'Beware! Caution ahead!' and I am not going to ignore them. Don't get me wrong. I am not saying the markets are going to start a deep dive although that is a huge possibility looking at the stretched 5 on 5 wave patterns stretching back to the start of the multi-decade bull run from the 2010s. These huge market selloffs usually needs a black swan event or catalyst and barring that, the markets might just be in an indecisive range marked by volatilities. What I learnt was the top (as well as bottoms) are processes that takes time to develop. Its about recognising the signs and preparing adequately. I believe a topping process is ongoing now towards that ultimate C wave down which will be known as the 'market crash'. 

Technically, we have 5 micro waves off the top as a result of Tuesday's sell off followed by only three wave up from yesterday's rally. It looks geared towards making another 5 waves down unless the markets catch a bid and we see a vertical move up. So it looks likely to make a 5 waves move down. 4580 is my pivot. Considering the probabilities, the market will either 

1. Make a corrective 5-3-5 ABC pattern known as a zig zag with the 4580 levels successfully defended, in which situation, I believe there will be another swing rally upwards into March, or 

2. The next 5 waves down will extend and develop into a third wave as well as taking out the 4580 pivot which will indicate the top is probably in and the markets are making lower highs moving forward. 

So I would rather be safe than sorry. Even if the markets go parabolic dot com style, I am ok with it. At least my capital is safe.

Disclaimer: Please kindly do your own due diligence as this is a sharing article and in no means financial advise. I am just sharing my opinions and thoughts.

Thanks for reading my commentary. Hope it helps!

Stay safe! 😊

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