So after the news that the GDP number was better than expected, the market gave you all of 10 minutes before it began another plunge. I've posted here my 'best guess' of the count, but the problem of a wave 3 is that the momentum is so strong you never know if the train is ever going to stop! So even though the pattern 'looked' complete yesterday, it obviously wasn't. And even though I show a pattern that is nearly complete now, doesn't mean it is and that we don't drop another 50 points Monday.
Here is what I suggest. Do not cover shorts or take profits on puts until you know that we are at least in wave 5 of 5. Add to shorts during every rally and be thankful you got a chance. The last thing you want to do is miss out on a massive move because you were tinkering with 10 points of profit.
Ok, so here is what I have: an hourly chart that has stayed below the 8 SMA this whole drop. That is the first clue that we are still in w3. Now, what I would expect is that w3 would subdivide into 5 smaller waves. That doesn't mean it has to. If we break the 8 SMA on Monday to the upside, then that would be my clue that we are subdividing. If we don't, then we will continue to drop to 800. If we bounce Monday, I don't expect any rally to take out the ES 840 area, so add to shorts there if we get one.
I'm showing the NYSE Tick chart at the bottom to show that the broadness of the selling hasn't kept up with the price chart. I use that to show support that after one more brief low on Monday a.m. we could rally to the upside target.
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Rich: Great blog! There are two different trading styles I've observed on-line. Some will load up with shorts at fibanocci retacement levels. Others wait to go short at lower levels when the market confirms the drop has begun by breaking key support. I suppose one is a contraian approach and the other trend following. I prefer the former.
ReplyDeleteMy question is around options. Do you tend to load up on pullbacks (like the recent w4) or add on the way down? My trading funds are in an IRA and the 3 day settlement rule is annoying, hence I want to replace some of my leveraged etf's with puts.
Thanks,
Kevin
Nice suggestions and finally we have the same count but the last corrective wave was very complex. Great work Rich and stay short :)). Filipe Miguel.
ReplyDeleteKevin,
ReplyDeleteIf you've been reading my blog, then you should know I'm a big believer in loading up on options after the first w1 confirmation using fib relationships as areas to add to positions. Unfortunately, all I got was my first target, so I'll have to be adding to my shorts on any and every pullback and maybe sometimes even without them.