Friday, November 22, 2013

Correction to start next week?

The market decided to ignore the right shoulder of the IHS I posted about yesterday and went for another all time high today. Technically speaking, there are 5 proportionate waves in from 1746 to make this the last wave of this year's rally. The wave I have marked as V is exactly 27 points or in other words the length of W1. It goes without saying that this V wave could easily extend or maybe even break into another 5 wave count and target the levels I have mentioned earlier this week. I called for a rally off this week's lows but now that the minimum requirements have been met I am expecting a correction to come as soon as early next week (if the V doesn't extend) so I am getting prepared accordingly. The coming correction is going to be interesting as the count I have calls for a higher degree correction and without doing much in depth analysis, my assumption is the 200 day moving average will make a nice target whatever level that might be when the market gets there. As of today, that number is 1644 and rising every day. Obviously, calling tops is an "counter trend" call and they are by nature inaccurate so we'll see how things evolve as these waves start to exhaust themselves. If one would have just followed the short term trend I post and ignored wave counts, technical analysis, etc. one would have out performed the market easily this year.

I ended up selling my short term longs for very little profit since it barely moved from where I got it and picked up VXX at a substantially discounted price (relative to my sell price earlier in the week). And should the market start evolving into a 5 count, I will sell VXX again and buy it back later. These volatility and 3x instruments are extremely risky to hold for longer periods of time. I am lucky I have managed to make some money out of it but I was looking at the charts for VXX for the past 5 years and if one would have purchased $7,500 5 years ago, it would be worth $45 today. In the case of TZA (3x short SP500), if you bought $10,000 just 2 years ago and not sold, you would have $8 today.. talk about decay! they should be banned come to think about it as a larger number of unsuspecting traders end up buying these without thinking. So be careful if you are tempted by their seemingly outsized returns.

Have a Great Weekend!

Short Term Trend = Bullish
Medium Term Trend = Bullish
Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

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