SPY + US Markets Worst Case Scenarios

Right now we're at strong resistance on SPY. Looking at most major indices, we've essentially had what looks like the same move off of the lows - a counter-trend rally ABC. On SPY, we've nearly completed the 1:1 extension of Wave A to Wave C and we're at major resistance along with a 0.618 retracement level. I believe we will roll over here. If we do, here are the various bearish counts that could materialize.

A) Probability: 40% - We could make another internal retracement - we could already be in a bull market, in which case I want to see a retracement here and hold about what would be Wave B. This would give us a change to either turn the current Wave C into the start of a Wave 3 or it would give us the ability to put in a leading diagonal Wave 1. This would be the most bullish case as it leads to new ATH eventually.

B) Probability: 55% - We are putting in a larger zig-zag and we are indeed in Wave B of the larger ABC. This would necessitate us puling back into the lows (double bottom) or putting in a lower low and putting in either a 0.618 or 1.0 extension. This looks like the highest probability scenario looking just at the price action since the crash. However, on my longer term count I believe we're putting in some kind of flat or expanding Wave 4 triangle. These two counts are incompatible and cannot both be right. The shorter timeframe evidence is what I look at to make trades. For us to make this kind of move, I think the names that have already been sold will see some more pain but won't necessarily break historic lows. I think the next down draft will come from the sell off of what is currently perceived as "strong" stocks - tech stocks namely that are still parabolic.

C) Probability: 5% - We just put in Wave 2 of a larger 5 waves down. I don't believe this is what we are doing but it is technically possible given the price action since the crash. This would mean we go much much lower. Looking at the markets across industries, It's really hard to imagine how we go lower in some stocks. It would mean that the names that sold off sell off even lower, potentially breaking historic lows. Like in B) it would mean that tech names likely sell off. It would mean that absolutely everything is overpriced - perhaps gold + BTC as well. It would mean over the last decade, every market has become overvalued.


*probabilities based only on recent price action since beginning of crash

Note: B) is a very text book scenario, and may be an overcrowded view.