Following up: Is another stock-market squeeze on the cards? Sunday 1 August 2021
During the sell-off in early-March 2021, the regime-model flipped to “Mind the Squeeze” (see the March 7th update “Is another stock-market squeeze on the cards”). With the market now ~15% higher we find ourselves in the same position as shown in the chart below.
This is intriguing given that we are at historical highs. The nature of the current regime is such that fast sell-offs can occur just as much as violent squeezes, albeit the squeezes dominate. Given the cycle work described in early-July, we perhaps face a continued move higher into mid-August or mid-September before the next non-trivial correction.
The Elliott Wave Principle helps give some context to the rally here. The steepest portion of the rip with no troughs overlapping peaks occurred between late-March and early-May. This suggests that the middle of the move lies therein. In fact, a Fibonacci confluence level lies at ~4040 and becomes the line in the sand for the bull market. Above this level, I am a buyer of weakness subject to the regime-model output. A geometric projection suggests that the SP500 is gunning for at least 4800 probably into year-end 2021. I would not be surprised by a higher number.
Digging under the surface into the individual model inputs reveals some interesting candidates for bullish trades. Top of the list is EWY (Korea) where major support lies at 79/80. When the current (insanely long) sideways consolidation ends, a move well over 100 could ensue. I am looking to see which implementations make the most sense. Option plays will need to be of the 3–6 month variety.
