SPX Just Triggered Most Common Recurring Crash Signal.
This happens a lot before crashes.
First let me frame this a bit by giving some back ground on my research into market crashes.
It's important to provide context and previous analysis posts because the things I am forecasting should not be forecastable and the methods I use logically should not work. Yet, we have a track record of them working. Note, I am not here to debating methods of analysis. I use experience to determine what does and does not work. If it doesn't work, experience.
The earliest I became really interested in TA for fat tail moves was around 2015. It wasn't indices, it was Sterling. I'd thought using a mixture of Elliot Wave and a few other things Sterling was set to spike and crash. I mapped out the expected high level and bounce levels along the way.
What I ended up with was a forecast of GBP dropping over 10% against other majors. Which was a far fetched seeming forecast - but lo and behold, when the Brexit vote came around there was first a false report implying the UK would remain in the EU and then there was a correction to this that they were probably leaving.
The market duly spiked and then preceded to slam 15%. One of the biggest Forex moves of my time and the TA nailed the important levels. My forecast was very accurate. Like, it was about 90% accurate. I didn't make a lot of money. The devil's in the detail. It spiked a little more than I expected and there were some other traps.
But it was enough to tell me it was worth investing time and effort into understanding the underlying TA of the forecast. If I'd been just a little better, I'd have literally made myself rich over night. I was the tiniest bit off. Surely, if I put in the work another huge trade would set up some time in my lifetime and I'd be ready for it.
From there I started studying crashes. Firstly in Forex. Then in commodities. Finally in stocks. I looked for recurring themes. Reliable relationships between price swings (Using fib levels) and I devised a set of rules that should be effective in working out roughly where a top is and accurately where the important downside levels should be.
I took this model of large crashes and I started to apply it to small Forex charts. Looking to find mini intra-day bubbles and see if I could trade the crash of them. I got good at this and I made a lot of money in the Forex markets trading these patterns. So much so, it became my main focus of analysis. Understanding the price action inside of boom/bust cycles.
In 2019 I seen topping signals setting up in US indices and decided to share my research on how tops/crashes formed and make some forecasts on SPX. This was the first time I found out there's a stigma about being a bear. See, in Forex that does not exist. In Forex it's fine to be a bull or bear. I'd never heard the terms "Perma-bull/bear" before.
No one assumes someone posting bull/bear analysis in Forex has been short from the bottom or long from the top. They don't assume you're trade plan is "Be right eventually". Everyone understands you have a shifting perspective on the market based on what happens with price. Not a shifting perception on price based on your default bias.
My proposal was simple, I thought SPX was in a false breakout. False breakouts before crashes are usually preceded by a false crash. The real top is usually a 1.61 extension of the false crash and if the 2.20 fib is broken then the trend will most often continue (Often after a pullback, but not always).
I proposed this around mid 2019 when the chart looked like the chart above.
Got a lot of flack for that, but the signal ended up working. Took quite a while longer than I expected.
While the news was surprising, price topping there did not surprise me at all. It's an observable norm in many major highs and it's one of my most useful tenancies I use in regular trading to spot false breakouts and possible reversals of moves. Usually it's something I use to trail my stops when I am a bull - Because usually 1.61 breaks, or it's not good to be a bull.
I nailed that first crash essentially high to low (Tried a few times too early, certainly wasn't flawless - just when it came I hit it) using the 1.61 topping signal and another recurring theme I'd noticed which was the first low was usually about 1.61 of the last swing into the high. This was almost the exact low. Tiny spike out. I went long during that.
Into the first bounce I thought I'd easily nail the second leg of the crash into the bull trap and that would be that. Back to Forex. When I started to phase out my longs and short retracement zones, I learned why people had thought I must be mad when I was presenting a bear thesis into a break of the highs. Shorting SPX isn't easy.
I'd do okay overall in PL on the move overall was wrong about a second leg. I tried shorting at a few big levels and when they failed I quit and started going over my previous work to see what I'd gotten wrong. The conclusion I came to was perhaps 2020 was the fake crash before the real high. Maybe the next leg would be the blow-off.
This was the first time I ever considered a mega crash in US indices (And started researching more about mega bubbles of the past). My reason being, the drop is always a lot bigger than the blow-off and if 2021 was all one big blow-off a much more serious drop would be implied. But I digress, point is - soon after the break of the high I drew a fib low to high of the crash.
I drew my fib.
And I went back to Forex. Where people are nicer to each other. I'd found my whole experience forecasting a SPX reversal disheartening. When I was wrong they called me stupid. Then when I was right they called me lucky. When I was wrong again they'd call me a perma bear totally ignoring I'd clearly called a low and reversed and was wrong for only very small zones.
I was always coming back for round two with SPX at the fibs. Win or lose, I wanted to try. My desire to share my strategies and analysis was heavily dampened. I knew they'd laugh before it. When I was saying a dramatic crash from this zone, look out for big news (Because there's always news). I didn't think they'd laugh at me when I was right.
But most people when I tried to show them my documented history of correctly calling the high and the low would inform me there was some sort of world event that caused the drop. I forget what it was. Something I must not have noticed at the time. People sure felt they had to inform me of it.
Then early 2021 a lot of non-trading friends with conservative risk profiles started asking me if they should go all in on the most speculative of stuff. First GME and then a series of other things. The whole GME thing was fascinating to me. I wanted to weigh in on it. Use my models to forecast the crashes of the bubbles.
Around this time I set up the profile name "HoleyProfit" (A pun on being told I had a 'God Complex' for presenting my trading hypothesis) and I started talking about fibs on Redddit. Now, I'd learned not to go in there and disclose I am a big bear right away. Reddit has some insanely obsessive users who'll attack all your posts if you let them know that.
First I forecast a rally in GME from around 50 - 80 area (I remember I gave what I thought was a hyper aggressive forecast with GME getting to over 800 after several years, citing TSLA's chart and people called that "FUD". So I just started posting bearish stuff on the memes. Might as well.
Got a lot of good ones. GME, PLTR etc.
And after this forecast the broad reversal of the crypto market. Unfortunately, I assumed a classic bull trap formation and these made butterfly spike outs. So my forecasts of the 70% + crashes were slightly early. They were right by the standards of investors. Would have been good to get out when I said. Wrong for traders, was too early to short.
Did okay once they did turn though. Spotted the harmonic false breakouts.
Along the way I've come to accept certain types of bulls will be caustic towards bears. I've now been through the whole cycle and see how it works. First they assume you'll always be wrong. Justifying all sorts of insults without you actually being wrong. Then when you're right, you never hear from them again or they come back to tell you it was always wrong, but lucky.
The success of the models I've proposed continued to work in the big caps once they rolled over. Forecasts of major highs in things like AAPL and AMZN.
Highs in indices.
Did well throughout the bear. Near the low I was talking about trade paths if a big break was made but within a reasonable short amount of time of said break not being made I pivoted to bull. By March of 2023 I'd fully reversed all my analysis to be bullish until at least 4400.
And then the recent top.
Giving this forecast if a break is made.
And the aforementioned "Break" brings us up to where we are now. Because when I wrote that I was thinking if SPX breaks the 1.61, the feature chart of this post.
Last week, we broke it.
In most major market highs it is obvious after the fact the 1.61 break was the reversal of the market. Sometimes it rapidly crashed after that but most often there was a period of down moves and big bull traps. Usually there's at least one big retest of the 1.61 (And there can be two -the second one a vicious bull trap) but when the dust settles, 1.61 break was end of trend.
As a cautionary note, we can not truly call this a break yet since we'd be looking for a couple big candle closes to support a break. It is perfectly viable that the 1.61 does not break and becomes a rock sild support. I am not saying bears can be complacent, I am saying bulls should be alert to the warning signs.
Upon a big 1.61 failure, sooner or later a crash has happen more often than not.
----
In this post I've put various things that were right. There were many things wrong as well. I am not claiming flawlessness. Also, since I trade real money based on this stuff I usually have multiple backup plans. It's foolish to have only one way plans, especially in markets moving as fast as recent ones have.
I'm not claiming myself or these methods are infallible. This post is just to collate the various big successes the models have had to date to support the warning of the 1.61 break.
The 1.61 break off a spike high was BY FAR the most reliable crash signal I found in all of my research.
I'm not saying the 1.61 breaking means a crash is certain, but I am saying I am certain most crashes started with 1.61 breaks and they looked like our modern weekly/monthly charts.
First let me frame this a bit by giving some back ground on my research into market crashes.
It's important to provide context and previous analysis posts because the things I am forecasting should not be forecastable and the methods I use logically should not work. Yet, we have a track record of them working. Note, I am not here to debating methods of analysis. I use experience to determine what does and does not work. If it doesn't work, experience.
The earliest I became really interested in TA for fat tail moves was around 2015. It wasn't indices, it was Sterling. I'd thought using a mixture of Elliot Wave and a few other things Sterling was set to spike and crash. I mapped out the expected high level and bounce levels along the way.
What I ended up with was a forecast of GBP dropping over 10% against other majors. Which was a far fetched seeming forecast - but lo and behold, when the Brexit vote came around there was first a false report implying the UK would remain in the EU and then there was a correction to this that they were probably leaving.
The market duly spiked and then preceded to slam 15%. One of the biggest Forex moves of my time and the TA nailed the important levels. My forecast was very accurate. Like, it was about 90% accurate. I didn't make a lot of money. The devil's in the detail. It spiked a little more than I expected and there were some other traps.
But it was enough to tell me it was worth investing time and effort into understanding the underlying TA of the forecast. If I'd been just a little better, I'd have literally made myself rich over night. I was the tiniest bit off. Surely, if I put in the work another huge trade would set up some time in my lifetime and I'd be ready for it.
From there I started studying crashes. Firstly in Forex. Then in commodities. Finally in stocks. I looked for recurring themes. Reliable relationships between price swings (Using fib levels) and I devised a set of rules that should be effective in working out roughly where a top is and accurately where the important downside levels should be.
I took this model of large crashes and I started to apply it to small Forex charts. Looking to find mini intra-day bubbles and see if I could trade the crash of them. I got good at this and I made a lot of money in the Forex markets trading these patterns. So much so, it became my main focus of analysis. Understanding the price action inside of boom/bust cycles.
In 2019 I seen topping signals setting up in US indices and decided to share my research on how tops/crashes formed and make some forecasts on SPX. This was the first time I found out there's a stigma about being a bear. See, in Forex that does not exist. In Forex it's fine to be a bull or bear. I'd never heard the terms "Perma-bull/bear" before.
No one assumes someone posting bull/bear analysis in Forex has been short from the bottom or long from the top. They don't assume you're trade plan is "Be right eventually". Everyone understands you have a shifting perspective on the market based on what happens with price. Not a shifting perception on price based on your default bias.
My proposal was simple, I thought SPX was in a false breakout. False breakouts before crashes are usually preceded by a false crash. The real top is usually a 1.61 extension of the false crash and if the 2.20 fib is broken then the trend will most often continue (Often after a pullback, but not always).
I proposed this around mid 2019 when the chart looked like the chart above.
Got a lot of flack for that, but the signal ended up working. Took quite a while longer than I expected.
While the news was surprising, price topping there did not surprise me at all. It's an observable norm in many major highs and it's one of my most useful tenancies I use in regular trading to spot false breakouts and possible reversals of moves. Usually it's something I use to trail my stops when I am a bull - Because usually 1.61 breaks, or it's not good to be a bull.
I nailed that first crash essentially high to low (Tried a few times too early, certainly wasn't flawless - just when it came I hit it) using the 1.61 topping signal and another recurring theme I'd noticed which was the first low was usually about 1.61 of the last swing into the high. This was almost the exact low. Tiny spike out. I went long during that.
Into the first bounce I thought I'd easily nail the second leg of the crash into the bull trap and that would be that. Back to Forex. When I started to phase out my longs and short retracement zones, I learned why people had thought I must be mad when I was presenting a bear thesis into a break of the highs. Shorting SPX isn't easy.
I'd do okay overall in PL on the move overall was wrong about a second leg. I tried shorting at a few big levels and when they failed I quit and started going over my previous work to see what I'd gotten wrong. The conclusion I came to was perhaps 2020 was the fake crash before the real high. Maybe the next leg would be the blow-off.
This was the first time I ever considered a mega crash in US indices (And started researching more about mega bubbles of the past). My reason being, the drop is always a lot bigger than the blow-off and if 2021 was all one big blow-off a much more serious drop would be implied. But I digress, point is - soon after the break of the high I drew a fib low to high of the crash.
I drew my fib.
And I went back to Forex. Where people are nicer to each other. I'd found my whole experience forecasting a SPX reversal disheartening. When I was wrong they called me stupid. Then when I was right they called me lucky. When I was wrong again they'd call me a perma bear totally ignoring I'd clearly called a low and reversed and was wrong for only very small zones.
I was always coming back for round two with SPX at the fibs. Win or lose, I wanted to try. My desire to share my strategies and analysis was heavily dampened. I knew they'd laugh before it. When I was saying a dramatic crash from this zone, look out for big news (Because there's always news). I didn't think they'd laugh at me when I was right.
But most people when I tried to show them my documented history of correctly calling the high and the low would inform me there was some sort of world event that caused the drop. I forget what it was. Something I must not have noticed at the time. People sure felt they had to inform me of it.
Then early 2021 a lot of non-trading friends with conservative risk profiles started asking me if they should go all in on the most speculative of stuff. First GME and then a series of other things. The whole GME thing was fascinating to me. I wanted to weigh in on it. Use my models to forecast the crashes of the bubbles.
Around this time I set up the profile name "HoleyProfit" (A pun on being told I had a 'God Complex' for presenting my trading hypothesis) and I started talking about fibs on Redddit. Now, I'd learned not to go in there and disclose I am a big bear right away. Reddit has some insanely obsessive users who'll attack all your posts if you let them know that.
First I forecast a rally in GME from around 50 - 80 area (I remember I gave what I thought was a hyper aggressive forecast with GME getting to over 800 after several years, citing TSLA's chart and people called that "FUD". So I just started posting bearish stuff on the memes. Might as well.
Got a lot of good ones. GME, PLTR etc.
And after this forecast the broad reversal of the crypto market. Unfortunately, I assumed a classic bull trap formation and these made butterfly spike outs. So my forecasts of the 70% + crashes were slightly early. They were right by the standards of investors. Would have been good to get out when I said. Wrong for traders, was too early to short.
Did okay once they did turn though. Spotted the harmonic false breakouts.
Along the way I've come to accept certain types of bulls will be caustic towards bears. I've now been through the whole cycle and see how it works. First they assume you'll always be wrong. Justifying all sorts of insults without you actually being wrong. Then when you're right, you never hear from them again or they come back to tell you it was always wrong, but lucky.
The success of the models I've proposed continued to work in the big caps once they rolled over. Forecasts of major highs in things like AAPL and AMZN.
Highs in indices.
Did well throughout the bear. Near the low I was talking about trade paths if a big break was made but within a reasonable short amount of time of said break not being made I pivoted to bull. By March of 2023 I'd fully reversed all my analysis to be bullish until at least 4400.
And then the recent top.
Giving this forecast if a break is made.
And the aforementioned "Break" brings us up to where we are now. Because when I wrote that I was thinking if SPX breaks the 1.61, the feature chart of this post.
Last week, we broke it.
In most major market highs it is obvious after the fact the 1.61 break was the reversal of the market. Sometimes it rapidly crashed after that but most often there was a period of down moves and big bull traps. Usually there's at least one big retest of the 1.61 (And there can be two -the second one a vicious bull trap) but when the dust settles, 1.61 break was end of trend.
As a cautionary note, we can not truly call this a break yet since we'd be looking for a couple big candle closes to support a break. It is perfectly viable that the 1.61 does not break and becomes a rock sild support. I am not saying bears can be complacent, I am saying bulls should be alert to the warning signs.
Upon a big 1.61 failure, sooner or later a crash has happen more often than not.
----
In this post I've put various things that were right. There were many things wrong as well. I am not claiming flawlessness. Also, since I trade real money based on this stuff I usually have multiple backup plans. It's foolish to have only one way plans, especially in markets moving as fast as recent ones have.
I'm not claiming myself or these methods are infallible. This post is just to collate the various big successes the models have had to date to support the warning of the 1.61 break.
The 1.61 break off a spike high was BY FAR the most reliable crash signal I found in all of my research.
I'm not saying the 1.61 breaking means a crash is certain, but I am saying I am certain most crashes started with 1.61 breaks and they looked like our modern weekly/monthly charts.
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