85% off the top

An equity crash so vicious and destructive, almost no one catches it.  With only one solid buyable dip (on the September FOMC), wave after wave of Fed sycophants and buy-side grifters are ripped to pieces and then eaten.  

Over in 9 weeks when the Fed announces a formal policy of buying ETFs like $SPY and $QQQ to support equity valuations and keep the deflation monster from devouring the world.

S&P 500 daily

A triangle would work well here

We have overshot the .382 retrace of the big drop from 2800 SPX, but this bounce has done the important work of kneecapping the $VIX. 

A bear would want to see it back off and resolve as a triangle into the FOMC at the end of the month.  We can still find our way back to 2520 in a sensible way, preferably with a $VIX of 18 or lower.

The break from the triangle would be violent, potentially even more steep than what we are counting as the third wave.  But it would mark a climax in the selling that would then reverse in a stronger and more sustained retrace.

At some point this year the real damage is done.

SPX daily

What a real crash would look like

It would be as shocking to us as 2008 was in comparison to 2001.

The market would simply go no-bid, again and again, with no one substantially short enough to stanch the bloodletting.

The only thing that would stop the destruction would be a panicked Fed announcing QE4, say, at the July meeting.

2138 SPX is the 1.618x fib extension upwards of the 2008 bear cycle.  2141 late next week would make a great end to all of this.

SPX worst possible intermediate-term tape

The Christmas Crash Scenario

When he's not scoping out moldy old sci-fi in the local Goodwill, the modern Elliotician spends most of his time war-gaming various scenarios, some of them extreme, about the future.

It's a little like those great old Avalon-Hill games we played as kids on the giant hex maps where the Soviets were pushing through the Ruhr Valley with the Czech mechanized units, and, well, could you counter it conventionally, or does it need to go nuclear?

If we can make it to the top of the megaphone -- an insane 2040 SPX -- by, say, Monday, then I can get us a crash by Christmas.  It would be triggered by a rejection off the underside of the 200 DMA, and then ... nothing but air for 700 handles ... a true historic panic.

So here it is, mechanized units thrusting into the Ruhr.

SPX - Christmas Crash scenario

But we gotta finish the rally and -- hopefully -- make our new highs first.  Bicycle is worried about us hanging around up here for a while like a bad canker sore, and so am I.  We are bold men of action, eager for the future!