Fib-O-Matic

Drip drip drip – another down day with Ueber-bearish sentiment in the 90 percentile. I know what you’re thinking: How long can this keep going on? What happened to that Minor wave 4 you promised us, Herr Mole?

Well – love or hate this tape – it’s a third wave and it can drop till it… well…. drops! 🙂 Since February 10th (the end of Minor 2) it’s been one down day after the next. I am counting 13 downers and 4 uppers – a ratio of 3.25. This, my dear ladies and leeches, is most likely a third of a third – if not then the bulls might want to head for the hills when that one hits.

However, that said, there is some strong support lurking below and I wouldn’t be surprised if our intrepid institutional friends weren’t sitting somewhere down there with some massive buy orders. There has been some very suspicious Level II activity today, so something is brewing  I have drawn the current fibs in blue and a second one based on my preliminary target in orange. To make it easier for your teeny weeny rat brains the two main scenarios correlate with those colors.

Orange: This would actually be my favorite count and also the cleanest overall. We drop towards 650 and then reverse into Minor 4 of (5) – target 735.

Blue: We completed {v} of 3 of (5) today and are pushing into Minor 4. Our target here is the 750 region.

Of course there is nothing preventing the SPX from dropping below 650 during a capitulation triggered by a news based catalyst. GE is obviously teetering on the edge of extinction and who knows how deep the rabbit hole really goes. If you’re not already exposed to the short side this is however probably not where you want to jump in – the cards are stacked against you in the risk department.

Swing traders on the other hand can keep playing the game I talked about today because that channel has been pretty solid and right now we’re skating down the center line. Whether or not you are playing the swings – observe this channel because a break out into Minor 4 would clearly breach the upper boundary and probably not even reverse for a re-test. Sentiment is registering record extremes right now and the rubber band is stretched to the max. You don’t want to be running 20 positions in this situation. I think DeNiro said it best:

Don’t get attached to anything you can’t walk out on in 30 seconds if you feel the heat around the corner.

Great spot to load up on Gold puts or sell IMO – I’ve drawn some fibs for your convenience. The 940 to 953 region looks good. If we push past 966 I might get nervous.

BTW, I’d love to see more long candidates – you guys have been less than forthcoming in that department.

That’s it for tonight. Happy hunting tomorrow.

Cheers!