I certainly do not want to celebrate, yet... However, check out this 5 minute chart for the last two sessions.
From a technical standpoint, the action was simply superb. I see no less than 3 down side EWT wave patterns and potentially a much large one under development. Remember, there are 5 alternating waves to the pattern - in this case starting with a down wave, slight pullback, continuation wave, slight pullback, and then exhaustion wave. The fact that we piled three back to back with zero correction tells me that this is the real deal.
For the heck of it - take a look at each minor EWT to see for yourself. Minor EWT 1 is classic - it even features a nice continuation gap in wave iii.
Minor EWT 2 is less pretty but clearly takes shape. What I really like about Minor EWT 2 is that it actually morphs right into Minor EWT 3 - meaning the exhaustion wave v of EWT 2 becomes the breakdown wave i of Minor EWT 3.
Minor EWT 3 was the biggest sellout of them all and is simply crazy! I could easily argue that it is made up of multiple EWTs - but what is the point?
The point is that this selloff is obeying classic technical patterns and that is a good sign. Further, if the larger EWT is materializing, there is a very good chance that we can see another 120 points off the current level rather quickly.
I am looking at this current move as an opportunity to by cheap insurance. Today I purchased in the money call options on SPY and DIA for October, protecting 40% of my short position against a further rally this month. I plan to watch price action over the coming week and will consider full insurance (perhaps with November call options) at even lower prices. This would allow me to sit comfortably on my short positions until a correction takes place.
This weekend I will perform a thorough analysis of the yearly, monthly, weekly, and daily charts to identify possible targets for a downleg.
Happy trading!
7 comments:
great post David
I have to think that we will bounce off of 1048. I did not play today terribly well, but again I think we are going to get plenty of chances to short and re-short. (all i have left right now is my hedge that i put on a the wrong time today...) Possibly a bounce with a failed breakout?
David great post as always ,
It nice to see something make old time scene .
We can expect the Bulls to try to make a stand on Friday , early and late in the day.
The reaction to Rimm after hours
displays a bearish mood
With seeing 1080 and 1047 in the last 2 days , 1017 see not near so far away.
KPH , That happens , but you live to fight again another day.
Be Careful out there
David - is there a way to contact you via email?
Hey ataraxia101,
Surely, david@charityrunners.org
All the best!
David
Thanks for the email address.
However, for some reason, it is bouncing back.
Anyways -this is the question.
One of the things that you mentioned in the recent blog post is that you saw
last week that institutions were definitely selling.
What indicators / charts help you come to that conclusion?
Thanks
Email account was full - sorry.
Of course, the most obvious indicator of institutional selling is volume. Another tip is when a significant NEW resistance level forms across an entire session or more. We saw that clearly at 1073-74. Violent push-backs of advances characterize the phenom. Also, several influencial hedge fund managers began making statements that they were either short or long. Depending on the history of the individual, you can anticipate the trend. For example, when Warren says he is buying US equities, many fund managers sell into the resulting retail strength. Additionally, I monitor certain blogs and message boards to gather some intelligence from others.
Sorry I do not have a more precise and dependable measure - but I am very pleased with the results of my methodology to date.
Good luck out there and thanks for commenting!
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