Nice day to be short the market. It's getting to the point where a lot of pressure has built up, as the market starts sliding beyond what people considered within the realm of imagination. A sharp reversal typically follows this type of disintegration, and by the look of the chart I think reversal day could be tomorrow. Four red candles down, each real body greater than the one before. The reason this is not sustainable is that undisciplined greed always gets punished. Disciplined shorts book profits and tighten stops as markets near bottoms.
By my count, the initial selling phase of the bear market is nearly done. Here's a look at my Elliott Wave count of the correction since its inception last October. I've had to revise my assessment several times during the course of this bear, and my current assessment is that Primary A will come to an end after a countertrend 4 and then a final 5 drop, both waves being of sub-Minor degree.
Andy at
PTV Investing has the next cycle turn date at 16 May, which is really farther off than I would think given my count. On the off chance that my Primary A should end on his calculated turn date, one model that might prove useful is the end of Intermediate A from early last year. From a similar point in the wave cycle, albeit one degree greater than where we are now (i.e., when completing Minor 3, 4, & 5 of Intermediate A, vs. sub-Minor 3, 4, & 5 of Minor 5), it took around 60 days to complete those final 2+ waves. If there ends up being a similar relationship between the final weeks of Intermediate A and Intermediate C, then we can use the earlier period as a guide. But this is, admittedly, quite a leap.
We'll see; these are likely to just end up being stories I tell myself. On to the trading. We bought the shorts and got stopped out of VMI. Given how extended the shorts are, I recommend booking at least half the short positions sometime tomorrow, either at open, or for those of you whose brokers allow it, a 1.0-1.5% trailing stop applied to the opening price. To illustrate how tenuous current prices are, within fifteen minutes of the close, SPY rallied from 70.60 to 71, or 0.5%. I won't say that we've hit the bottom of this Wave 3, but it feels close.
| Current Holdings |
| Ticker |
Basis |
Closing
Price |
Perf. |
Sell-Stop |
Additional Exit Guideline |
Chart |
| DUG |
30.01 |
34.50 |
+15.0% |
31.26 |
Consider booking at least half the position tomorrow |
Chart |
| RWM |
80.01 |
84.96 |
+6.2% |
81.99 |
Consider booking at least half the position tomorrow |
Chart |
| CYBS |
12.48 |
11.72 |
-6.1% |
11.45 |
N/A |
Chart |
| SRS |
83.51 |
92.00 |
+10.2% |
83.17 |
Consider booking at least half the position tomorrow |
Chart |
| SMN |
51.16 |
56.83 |
+11.1% |
50.89 |
Consider booking at least half the position tomorrow |
Chart |
In case tomorrow is reversal day, these ideas will trigger. (TLT may trigger either way.) If not, then we ride what's left of our short positions into the great abyss.
New Trade Ideas
| Ticker |
Entry |
Exit A |
Exit C |
Chart |
| SWKS (Skyworks Solutions) |
6.61 |
6.14 |
5.94 |
Chart |
| ATVI (Activision Blizzard) |
10.27 |
9.72 |
9.29 |
Chart |
| TLT (20+ Year Bond Fund) |
103.31 |
101.20 |
N/A |
Chart |
| GVA (Granite Construction) |
36.63 |
34.35 |
33.58 |
Chart |
Please refer to "How To Trade The Ideas" (right-hand side) to read this table.
After hitting a two-day peak today in the penultimate hour of trading, the S&P pulled back, tried to rally, and then just collapsed: from 804 to 794 in 15 minutes. Such severe plunges tend to happen within C waves (recall that we had been in a C wave from May 08 until this past March). On the plus side, C waves are relatively short in duration; if one began today, it could be over and done with as early as tomorrow (but the S&P may fall all the way to the 730s in that time!) The other positive is that the C wave paves the way for the next impulse wave up. (Note: the above graphic is the 15-minute chart of the June 2009 S&P futures, which is a fair proxy for the index itself. X-axis is Pacific time).
