This market is actually a kind of a demonic force.
You have the smart money who trades big with high leverage. They watch what everyone else does — the dumb money — and do the opposite.
They don’t care if the markets go up or down. They just want to take all the profits out of the short-term gyrations!
So, when they think everyone is bullish, they start shorting.
When they think everyone has caved in during a downturn, they start buying.
That’s why everyone always thinks they were the last one to sell out before the market reverses, and visa-versa.
They play their card very close to the vest — and move fast when they finally do. There couldn’t be a better example of that than the up-and-down market since the bubble-like peak in January of 2018.
I have been watching this dominant pattern in stocks for many months now.
A megaphone pattern sees higher highs and lower lows in between until you get that third top or “E” wave. In this case, the new highs have been slight and the new lows have been much more aggressive. That is a more bearish sign.
This chart suggests that we are most likely heading down to a lower low than December 2018, back when stocks crashed 24%. The next crash would target around 20,000 — a 27% or more crash. Many will think the bull market is over, and it likely will be for the Dow and S&P, though not for the leading Nasdaq.
But traders are stringing this out as far as possible, waiting to tire out both the bulls and the bears before likely making a sharp move down (and still possibly up).
I marked the final channel in this megaphone pattern. It may have already peaked near 27,400 in July, or it may make a new high just above here at that top trend line around 27,600. We could also see an “overthrow” into the top of this channel as high as 28,400.
Then we likely get that 27% or more crash to 20,000 or so, just when many analysts are proclaiming a new bull market ahead.
I have noted in past 5 Day Forecast issues that the collapse of Bitcoin from its potential final bubble towards 32,000 strongly suggests that there won’t now be a final blow-off top to Dow 33,000 or Nasdaq 10,000.
What is most likely, if we can’t blow convincingly above 28,400 on the Dow, is that we crash to 20,000 within a month or so, then the Fed steps in big time and we get one final rally that could see new highs on the Nasdaq, but not on the Dow and S&P 500 — a classic divergence!
I’ll keep you updated. This sinister market is running out of patterns to stall and should either break up strongly or down…
The downside first is still the most likely scenario with all of the bad politics going on. This is a good time to sell or substantially trim stocks. We are likely to get one more, early to mid- next year.
Think how demonic this sort of top would be: They scare the bulls out going down to 20,000, then scare the bears going up to a slight new high on the Nasdaq to 8,500 plus that looks like a breakout.
Then the market crashes over 80% into 2022 and leaves us all behind…