Three Way Action

Of course I know what your dirty minds all conjured up when reading the title. But what I have in mind is more along the lines of this:

I think black and red should join forces and gang up on white – that’s my way of doing business – mmwwuuuuaaaahaaaahaaaaa!!! Hey, all is fair in love and war

I hope you rats can forgive me if I make this one fairly short again – I have been coding almost non-stop since Friday afternoon. All that while the weather in over here in L.A. is simply amazing – temperatures are just perfect (below 80 degrees), the birds are nesting, flowers in bright colors everywhere you look – in other words spring has arrived in full force and is shining in all its glory. My favorite season I might add! And here I am sitting in my office for the last 48 hours working on my maggot tan.

The good news for you leeches is that I completed and tested the DB access code in C# last night, the SMS piece is working, and now all I have left is to put the various pieces together. I think we’re only a few days away from ripping the lid off of evil.rat – I personally can’t wait. I had considered to notify you guys manually for the first week or two, but then I just decided to get it over with and write the whole thing in code. This way it’ll be more accurate and faster as adding time stamps and spot price are almost instant. Besides human’s make mistakes plus I enjoy taking toilet breaks every once in a while

Alright, I promised you some hot three way action, so let’s get to it.

I have to say I really like this chart – I’m almost proud – with all due humility of course at my feeble attempts to predict the future. But it slowly feels as if order is returning to my little universe. I spent almost two hours drawing those lines and it seems that things are things are beginning to line up more nicely. That’s something I have been sorely missing in the past few weeks as there wasn’t much to hold on to. Of course that’s not unusual at the onset of Primary waves – there’s a complete break with most prior wave relationships and thus I rarely trade during those times. But as time passes you start seeing things line up again, which gives us Elliotticians the opportunity to derive probabilities by drawing upon support/resistance zones which are likely to encapsulate the unfolding wave pattern.

So, here’s what we got – actually what I’m proposing is more of a 2 1/2 way – imagine two grown ups and a sexy midget. If it’s any consolation – they all point down within the next 2-3 trading days. So we get to be bears again – if only for a relatively short time.

Orange/Blue: We are close to completing Minute {i} of Minor 3 of Intermediate (A) of Primary {2}. I picked the 850 – 860 region as the target for Minute {i} as this would represent almost a perfect motive wave relationship. Also, there is a diagonal (shown on the chart) which intersects there or a bit earlier if you connect {b} of 2 with (iii) of {1} of 3. Orange and blue only differ in terms of their length of retracement – both are mostly derived from a preliminary fib ratio, i.e. orange ending at the 38.2% fib line and blue ending at the 61.8% fib. Of course we could get something in between ending around the 50% mark. I just wanted to show how the waves might play out – and admittedly they are both similar.

UPDATE 8:07pm EDT: You might have noticed that both counts assume a full stop around the 881 region, which just so happens to be the 23.6% fib line of Primary wave {1}. However, StainlessSteelChicken (great name btw) just informed us that it also happens to line up with a fib fan he drew from the 1932 low to the 2007 high, which gives this resistance line additional significance. Here’s his chart:

BTW, this is the zoomed out version:

Green: That’s our wild card scenario. It assumes that Minor 2 of (A) has not completed yet and that we are tracing out an expanded flat (psalm 47:1-34 in our bible). The implication here would be that we cannot breach Thursday’s high of 845.61 and should almost immediately proceed lower – our target here is in the 760 – 770 region, based on several diagonals also drawn on the chart. Of course it is possible that we might trace out a running flat instead (psalm 48:1-39 in our bible), in which case we would probably see a bottom of {c} of Minor 2 at the psychologically sensitive 800 mark. The uncle point for the green scenario is the 810 region (highlighted on the chart) – if we break that level without a prior breach of Thursday’s 845.61 high then the probabilities shift very strongly in favor of an immediate and more significant short term bearish scenario.

For the record: Although a small bearish play is in the cards my focus remains on establishing a defensible position for playing the long side. In that context it is important to remember that options are still relatively expensive and will remain that way for the foreseeable future. That means we’ll have to employ a more sophisticated approach to playing the long side. Perhaps that should be the focus of lovely FujiSan’s next treatment in her options strategy series.

Thanks again for the insightful post, FujiSan – it seems many rats greatly appreciated your IV Rush straddle strategy. The only thought I would want to add is that on high probability/low profit strategies one should strictly stick with options on high volume symbols – I suggest a minimum of 2 Million shares trades per day. Otherwise you might find yourself donating 50% or more of your profit margin to your friendly market maker

The NYSE Bullish Percent Index – a more long term trend indicator – would also benefit from a few days of retracement. We’re getting pretty overbought here (by Bear market standards) although I do expect us to touch the 60 mark by the time Minor 3 of (A) finally concludes. But a small pull back here followed by a big spike up would fit our big picture nicely.

Also thinking longer term – once we approach the top of (A) of {2} we might also see a convergence of my three simple moving averages (10/20/50) in the NYSE New Highs-New Lows index. This is obviously not a very accurate indicator for projecting market highs but there seems to be a pattern that’s worthwhile watching. Personally, seeing the 20 SMA cross the 50 SMA was yet another piece of supporting evidence that Primary wave {2} was unfolding. It should probably stay that way for the remainder of Intermediate (A). Once we see the 20 SMA breach below the 50 SMA and remain there for more than a few days it might confirm to us that (B) of {1} is playing out.

Gold finally delivered the 1-2 combination I was waiting for. Not only did we closed below that ‘fucking diagonal support line’ and then pushed past the psychological 900 mark. What escaped me on Friday was the green support line (touching ca. 918 on Friday), which was also overcome. I found it particularly interesting to see Gold drop on a day when the Dollar got its ass kicked:

I’m a bit soft on the Dollar’s near term course but it’s very well possible that we’ll see further weakness here. Thus, Gold might retest the green diagonal again, in particular if equities push into the green scenario outlined above. We should however not spend more than a few days whipsawing around and at some point proceed lower without making significant upside progress. The only support line I see going forward is 890, after that there’s pretty much only thin air until 840 when we’ll touch that old diagonal support line (red line).

There’s a lot more I would like to share here today but unfortunately I have a lot more coding ahead of me as I’m determined to wrap up various milestones on evil.rat in the next two days. Many of you rats have been clamoring for a release but after last week’s email debacle I decided to add SMS functionality to my roaster of deliverables, which added two more days of work (but it’s done and successfully tested as well).

BTW, if anyone knows a low cost but highly reliable SMS gateway provider, please let me know. Right now I’m using bulksms.com but those wankers are charging me a whopping 5 cents per text message – which adds up quickly if you do the math and thus really cuts into my profit margin.

Anyway, I’m going to try to get in an hour of gym time – I’ll leave you with this:

Cheers,

Mole

This entry was posted on Sunday, April 5th, 2009 at 4:59 pm and is filed under Market Outlook. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.