Today was a bit anticlimactic since all the selling took place during the holiday/overnight sessions. All we got in the U.S. was a consolidation day BELOW key support areas. I am expecting a test ES 740 either tomorrow or Thursday.
Since our intermediate wave 3 has subdivided so much, we should expect the chop to continue as the market puts in a number of 4th waves to match up with the 2nd waves. We'll probably have massive down days intermingled with consolidation days like we had today, maybe even a rally or two to keep the bears honest. As for time, I expect our primary wave 1/A to be all over by mid-late March. One thing is for sure, until we get some real selling, we'll continue to push lower as no bull market can be sustained without it.
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Thanks for your many updates over the last few weeks.
ReplyDeleteI haven't checked my records, but I think today was the best day of my career.
A fun idea I experimented with today: I took all my profits on my Feb OTM options on the open, and converted them all to Feb. 810 puts. The average fill i got was 26 points, which comes out to roughly 1300 dollars in margin. An ES contract eats up 6k in margin. You can get 4-5 front-month ITM options. As long as the market stays below 810 going into op-ex, then these contracts turn into futures. In the meantime, the delta is close to as good as futures anyways. Very solid bang for your buck.
Nice observation. I haven't played with futures options yet, but it definitely makes sense. Congratulations on the gains! Hopefully there will be many 'best days' of both our careers in the near future.
ReplyDeleteHey Rich, I enjoy your work. What kind of Primary B rally are you expecting, potent or pitiful?
ReplyDeletesaleen, glad your finding my analysis useful. For the rally, I'm expecting at least a 50% retracement. Since I don't know where we'll end exactly it's hard to get the right number but I would expect 1000-1100 to be a good target.
ReplyDeleteThanks Rich..You really think we're going that high with all this bad news?
ReplyDeleteI'm not Rich, but I'll answer. In terms of psychology, wave 2's are supposed to get the bulls all juiced up before the devastating primary wave 3 which would take us to new lows we haven't seen in decades.
ReplyDeleteI can't line up with fundamental news events that would push us that high, but price dictates action, not news.
You can imagine if we rally from 650 to 1050 that a lot of investors will feel it's "safe" to wade in again. That's likely when they get destroyed again.
Thanks gautsid, you got it right on. As for news, if we can get a climatic sell off then we will have the technicals aligned with the HOPE of the gov't stimulus plans, the HOPE, that the economy will be back on track in Q3-Q4 along with the knowledge that the stock market bottoms generally 6 mo before the economy. Of course when we get there we will be extremely overbought, and all the HOPE will be dashed away month after month as unemployment continues to rise, earnings continue to deteriorate, all the big companies are asking for more bailouts, etc. etc. That is why Primary wave 3/C will be so devastating. People will realize that all of the hope was just that: hope. Reality will sink in and people will sell like they have never sold before.
ReplyDeleteThanks guys, for explaining the psychology.
ReplyDeleteI have one more question..Why didn't the Nov. 24 low qualify as the end of Primary A? Was it the structure of the wave?
ReplyDeletesaleen,
ReplyDeleteIt comes down to how this corrective action is going to unfold. Many ewavers believed November to be the end of primary wave A. However, the action off of the low can only be a wave 4 as it was not long enough or strong enough to be a wave B.
I actually believe we're going to see a 1-2-3-4-5 and not an A-B-C, but for right now I'm being conservative. Either way it will be 5-3-5 (and possibly 5-3-5-3-5).
I wonder if the Primary B rally would coincide with a dollar devaluation.
ReplyDelete