“When I see a bubble forming, I rush in to buy, adding fuel to the fire. That is not irrational.” George Soros
The description of what causes an Ending Diagonal is a move that has gone too far too fast.
It is evidence of exhaustion within the scope of a Climax Run.
Think of a Climax Run as champagne…when the market pops its cork.
A daily SPX below shows we have 3 such Climax Runs that are part of 3 Ending Triangles.
Each one is successively smaller that the preceding one.
It’s like a pyramid of champagne glasses.
Of course the entire move from April 7th can be said to be one large Climax Run.
Below is a weekly SPX from Hit and Run last week showing a possible big picture Ending Diagonal.
That underpins the potential that the advance from the April low is a B Wave on the heels of an A Wave decline into April.
If so a vicious C Wave drop is on deck.
Each of the Ending Diagonals has produced a break of the 20 day moving average.
Each has rebounded to new highs.
Mr. Bull has pulled 3 rabbits out of his hat.
They are the personification of Buy The Dip.
But as we know markets play out in three’s.
I extended the bottom of the most recent Ending Diagonal (magenta) which shows Friday’s open was rejected at this extension with authority.
Despite Friday’s all-time high a clean psychological 6500 close on the index scored on August 28th ….splitting the difference between the August 25th, 1987 top and the September 3rd, 1929 top.
A correction is overdue and expected.
Yesterday the SPX traced out an NR 7 Day, the narrowest range in 7 days.
These contractions in volatility typically produced an expansion in volatility with the next few sessions.
There’s plenty in the way of economic reports this week to be an excuse of such an expansion in volatility.
The alternative to a C Wave plunge is a correction that is followed by a last ditch surge into November.
The presumption is a correction would be 8 to 10%.
There is some synergy pointing to Friday’s high as a possible top prior to such a correction.
Why?
The summer low is 6212 on August 1st.
360 degrees up is Friday’s 6532 high.
Of course a Key Reversal Day was on the table Friday before the SPX was saved by its 20 DMA.
In sum we have seen what looks like Champagne in many Momentum Monsters.
Yesterday HOOD and APP courtesy of their inclusion into the SPX.
Their ramps on Monday underscore how big of a deal the passive/EFT trade is today.
Champagne flowed in NBIS after the bell. Ditto our IREN.
Recent earning’s plays that popped their cork are SNOW, MDB, CRDO and AVGO.
But stocks don’t need an excuse such as earnings or inclusion into the SPX to go vertical.
Monday saw outsized moves in RBRK, ALAB, FTAI and ORCL to mention a few.