Stay alert - Expanded Flat Pattern in play
The markets may have gone on to new highs. Many are calling it a breakout and clamouring for a new bull market. Theoretically it makes sense. Technically speaking, price breaking out above a previous high is bullish. But is it that simple? If price patterns are not considered, it will be too easy to declare it a breakout buy.
And henceforth why we see bullish calls all around. They do not call it a bull trap for no reason. I am not saying a new bull market is not possible. In fact, that is one of the possibilities that I am factoring in. Just that, it is not my primary count because of the technical pattern I am seeing.
The market has to be viewed from a big perspective which means that the pattern in play now is on a multi year time frame. And the chart clearly shows that the market has made this corrective pattern again and again.
Now it looks like this corrective pattern is occurring again and sucking in bulls. Until it gets negated by huge volume as a third wave which means this has to be counted as a fifth wave extension which means stretching it actually considering the divergences seen in the markets, this is the pattern I am tracking and hence I am very cautious.
On a macro level, divergences are increasing as well as the market is only being held up by Nvidia and Meta with the other members of the magnificent seven not able to make new highs. I do not see how we can define that as a healthy market. So that makes me lean into a very cautious approach going forward with what I believe to be a market topping process going on. Touching on the major indices, contrary to what many believe to be a new bull market having seen a breakout above the prior highs, I believe that this is a major bull trap in the making. As mentioned, I am tracking a huge scale pattern called an expanded flat happening on a multi month level and the major indices are about there. The Dow has reached the extension levels perfectly whereas the Nasdaq and broad market index are whiskers from it. Volatility is coming back whereas the mid caps and small caps as well as financial and transports which are economy sensitive are far away from their highs and not looking like claiming it soon. The Russell has not reclaimed its highs and with SMCI accounting for most of the rally it has had, that to me is worth noting. SMCI has had a phenomenal run and is carrying Russell on its back! Bond traders are not buying up bonds yet indicating they feel inflation is not over and oil is goading inflation by threatening to enter a third wave. Breadth indicators are also signalling a lot of selling under the hood as well as a bullish sentiment that is sky high. Ark which I use as a high beta proxy and a leading indicator to a new bull market has a bearish pattern all over it. A new bull market typically is led by high beta growth and there is no way we can call high beta growth leading when it is unable to reclaim its previous highs while the major indexes have powered ahead.
The expanded flat pattern for the major indexes is already in the last stretch. Do take note of the clear three wave corrective pattern for this B wave rally up. I believe it is not time to be heroes. It is time to huddle and protect capital at all costs.
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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