First Floor Please!

A quick chart for you rats to chew on and to paint the picture for tomorrow:

Bottom line: The trend is down and judging by various momentum and trend indicators we seem to be on the brink of a very meaningful correction. It is possible that Primary {3} started last Friday, but at this point the preferred count is that we are tracing out (X) of {2} which will be followed by a (Z) of {2} to the upside (and thus complete Primary {2}).

Purely technically speaking it’s possible that we concluded a B or 2nd wave today, as proposed by the green scenario. I’m still not sure exactly what wave degree we are painting right now, hence the spike today was either a Minute {ii} wave or we are currently tracing out a Minor B wave (i.e. a zigzag) to the upside. However, although only a 23.6% fib retracement is necessary to satisfy EWT rules for a b-wave correction it would clearly be a bit on the shallow side. Frankly, I would like to see a run up to 925 if possible – of course the question remains whether or not we’re going to get it.

The market is a cruel mistress and how often have we found ourselves hoping for a chance to enter when the market keeps running off without us being able to jump in. And on the flip side – we had many hopeful moments in the past few months when we thought we had a great entry and then got burned by a sudden spike to the upside leading to losses. I can guarantee you right here and now that the majority of the bears did not load up at 956 (which completed a 5th wave at its minimum target) and are waiting for a chance to jump in. Which is actually why I even bothered to put the green scenario on the map tonight – it’s quite possible that this thing is going to keep running to the downside without a meaningful correction – thus forcing many bears to take non-optimal entries and perhaps even take trades ahead of snap backs.

Whatever you do tomorrow – don’t attempt to chase this tape. Remember the ‘big day’ of OPX week was today – Thursday and Friday are traditionally pretty flat and you’ll see diminished participation. So, let the market come to you – if the tape melts up towards 928 then loading up on some puts is probably not the worst idea – weekend theta burn be damned. If we drop tomorrow past the prior 903.79 low then we do ‘technically’ have confirmation that lower tape is ahead, but you might grap those puts right before a sudden rally and then will have to endure theta burn for days, possibly frustrating you to the point of ‘just wanting to get out’. Market makers love desperation trades – they are most profitable – for them.

So, although you guys probably don’t want to hear this, but the ‘good karma’ trade will be to sell the rips – remember, it’s better wishing to be in the market than wishing to be out

Last pointer before I turn into a pumpkin: Unless you have traded options for at least one year stay away from June options before they expire, okay? If you know what you are doing you can bank a lot of coin with ATM/ITM front month options in the last two days of OPX week as they turn into the equivalent of so called ‘mini futures’. There is practically no time (theta) value left, and thus a jump in the tape can be extremely profitable. However, this is also a great way to lose a lot of coin, especially since the market makers are wearing full combat gear and are not afraid to use their high voltage cattle prods to paint the tape any damn way they please. If you are still holding June options – sell them – that’s what you should have done today. And if any of the above is unclear to you – just stay away. Don’t get greedy, play it small, and live to tell the story.

See you on the other side – don’t worry – we will get our chance to jump in.

This entry was posted on Thursday, June 18th, 2009 at 12:35 am and is filed under Elliott Wave Theory, Market Outlook, Option Strategies, Trading. 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.