Friday, October 19, 2012

Real sell off or W2?

The market staged a somewhat surprisingly strong bearish wave today and the uptrend that was established just couple of days ago is at jeopardy. However, not all is lost on the bullish side as the sell off today failed to make a lower low. Looking at this wave, I see 5 waves complete to the downside and I see the exact same dilemma as I did just couple of days ago with the bullish wave. The 5 waves in place could be just the end of a bearish W3 or the end of 5 waves. So we have to see how the market bounces and on this one, but again the key level to watch is 1425.53. A lower low will indicate lower prices ahead, a strong rally on Monday will be a signal today was just a test for the bulls. Also, the market magically closed at the 50 day MA so again the same reasoning I used last week applies here, people who are convinced this market has legs will jump on this. Failure to hold the 50 day ma will mean the market is likely to test the next support level which is 1373 or the 200 day ma.

I should have kept my VXX yesterday! but again, I missed out as I should have just stuck with the 5 waves I labeled. But today I bought back the XIV position at 17.64, so we'll see how that goes next week. A breach of 1425 and I'm out, recapture of the trend average in a W3 and I will ride it. Lastly, the sell off today fits perfectly into the start of a W4 for emerging markets which would indicate there is another bullish period coming soon before we get a stronger correction..

Have a great weekend!

Long Term Portfolio: 100% Long (Emerging Markets Only)
Short Term Trading Strategy: Bought XIV @17.64 as of 10/19. Selling and hedging longs depending on how the market trades around the Trend Average test which is coming soon.

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