October Option Strategies

Fujisan here.

I’m running out of my Ukiyo-e posting and I’m switching my opening theme into tropical islands.  I hope you guys like it.

SPY Roadmap – Medium Term

I see many of you have loaded Dec & Mar OTM put options and I would like to point out a couple of things before you load up more OTM put options.

Inverted H&S Scenario

Here is my SPY road map for a medium term.  Although I’m short term bearish, I’m not as entirely bearish as you guys and I’m expecing a possible leg up toward the end of the year if inverted H&S pattern works out.  This is the best “guess” scenario based on the current pricing pattern.

H&S Scenario

Now, here is the “notorious” H&S pattern that failed last time.  I measured the same time frame to form the right side of the head and the right shoulder (although the downside is much faster than the upside (it’s about 2 to 3 ratio) - but I love symmetry and the right side – left side match so I decided to use the same time and price ratio to come up with this price projection). 

Again, it may not even form another H&S pattern here, but for the discussion purposes, I’m going to use this pattern for the October price projection.

 

As you can see, SPY may possibly be sitting around $87 area in December (if all works out) and here is SPY Dec open interests.  I always like to look at the open interests and see how the market participants look at the overall market direction, and it has served me quite well in the past.  You see pretty good open interests at 80, 82, 85, 90, and 95, and it’s not excessively bearish.

Now, let’s say that you have Dec 70 put options, and SPY drops down to $87 in October.  What would happen to your Dec options?

Note: The below price analysis is based on Thursday close (I wrote this up on Thurs night) so it’s not reflected by the Friday close therefore you won’t be able to duplicate the same PL chart.

December 70 Naked Put Options

If everything stays equal, you may be able to make $230 over your $470 investment if SPY goes to $87 in October, but please note that the probabilities of SPY “touching” $87 by Oct and OPX is only 12% and the odds are clearly against you.

Now, of course if SPY drops down to $87, VIX will spike up and inflate your put options, but how high would it go up?

Here is Dec 100 Put Option volatility study.  Based on this graph, estimated VIX at the price of $87 would be around 35%.  Similarly, I looked up the historical VIX at $87 on April 30 and July 8th and they were 36.5 and 31.3, respectively, so we could make a pretty good estimate of VIX to be around 35% if SPY hits $87.

Here is how PL graph looks like if SPY drops to $87 and IV spikes to 35% as of today.  I coulnd’t set it up to reflect time decay so this is just to show you how IV spike would inflate your put options as of today.  In summary, you would make $330 on a price move and $900 on IV spike, $1,230 in total over your original $470 investment.   This is not bad at all, but I would have to emphasize that this position is more like an IV play (you are making money mostly due to IV rush) and you are counting on the future IV spike to inflate your OTM put options.  

Please also remember that the probabilities are against you and your breakeven is at $90, only a few points above the target price of $87 and there will be a constant battle between theta burn and IV crush.  If you are taking this position, please make sure to put in the amount that you can afford to lose as the probability of success is only 12%. 

If you still like to play with put options, please do yourself a favor and buy at least ATM options instead of OTM options.

Caution:  Anyone with Dec 70 put options should close the position in October.  You can hedge your position by selling options at a lower strike price, but that’s not 100% hedge and by the time it comes back down to $87 in Decmeber (after forming the right shoulder), your Dec 70 put options would be entirely worthless.  Also, let me remind you that there is 88% probability that SPY may not be able to make it to $87 by Oct OPX.

Any Possible Hedging Strategies??

Mole was asking if there is any hedging strategy on these OTM put options.  Unfortunately, there are not much remedies at this point.  As the premium is very small to begin with, it would cost more to sell the lower strike price (to make it a vertical spread) or to create some kind of calendar/diagonal spread.  You would just have to sit through it hoping that IV would pick up somewhere down the line (which it will).  This is the reason why I never recommend far out of the money options. 

No Exit Point

If I understand this strategy correctly, you won’t get out of this trade until it finally works out — which perfectly makes sense as you may easily lose as much as 50% of the entire premium if you have to get out of the position when the trades are against you.  But from a risk management perspective, this is not really an ideal situation that you like to be in and if you do, please limit your exposure to less than 1% of your account balance.

Now, if you like to double your money without relying on the variables (such like IV spike and negative theta), there are much better ways to play this out.

December 80/85 Put Vertical Spread

Here is Dec 80/85 put vertical spread.  You buy Dec 85 put options and sell Dec 80 put options to create a vertical spread.  You can make $1,050 over $600 investment, and the breakeven point is at $96.6 – much higher than Dec 70 put options of $90.  As this position is still OTM spread, it has a negative theta but not affected by IV rush and crush as much as put options.  You would have a much more stable account balance overtime.  Probability of success is 35%.

October 105/90 Put Vertical Spread

Here is October 105/90 put vertical spread.  You buy Oct 105 put options and sell 90 put options to create a vertical spread.  You make $959 over $531 and this position has a positive theta.  Probability of success is 49%.

As we are in the probability business, it would always be a good idea to choose the higher probability play if the payout is similar.  I hope I made my case.

Summary

COMAS set up

Lastly, anyone using Person’s Pivot – I was able to setup COMAS at TOS, thanks to Dan Robbins.  I was using other momentum indicators like stoch & RSI as a confirmation, but COMAS works much better and picks up the change of the momentum much quicker than the typical indicators. 

If you are interested in setting up COMAS, here is how:

This is the direct quote from Dan’s email:

“The study is called TypicalPrice. It will plot the 1 period pivot point and which ever number you select for the 2nd period pivot point moving average.

Or, you can simply make your own by adding SimpleMovingAvg twice to your chart. Select H+L+C/3 as the price and then choose whichever number of periods you want. This is what I do. In Person’s book, he mentioned using the 1 period and 3 period for the changeover, however I like using the 3 period for both, but one is displaced forward (by using -1 in the displace setting). Lately, I’m finding a tick chart (1600 tick)  works well with ES, NQ, and TF, but not for FX.

“# My version of COMAS

declare lower;
input price = close;
input length = 3;
input mydisplace = -1;
input displace = 0;

def fastAvg = Average(price[-displace], length);
def slowAvg = Average(price[-mydisplace], length);
def value = fastAvg – slowAvg;

Histogram Set Up

# Histogram Magic

def longsignal = if (Value > 0) then 1 else 0;
def shortsignal = if (Value < 0) then -1 else 0;

plot long = longsignal;
long.SetPaintingStrategy(paintingstrategy.histogram);
long.AssignValueColor(Color.Green);

plot short = shortsignal;
short.SetPaintingStrategy(paintingStrategy.HISTOGRAM);
short.AssignValueColor(Color.Red);

Thanks for your help Dan!

I hope everybody has a very nice labor day weekend. 

Fujisan

Sat Update:

“Naked” simply means “not hedged”.  I eliminated it so that you won’t get the wrong idea.

I also updated Histogram Set Up as suggested by Dan.  Thanks again!

Sunday Update

PUBLIC ANNOUNCEMENT: I’m sorry to tell you guys about this, but I decided to quit my weekly post.  This will be my last posting on this site.  Thank you so much for your support and encouragement for the past 5 months.  I really enjoyed it and I hope you did too.  I will see you somewhere on this cyperspace.  Good luck to you all!

This entry was posted on Saturday, September 5th, 2009 at 9:48 am. Both comments and pings are currently closed.



  • molecool

    Great stuff and a very reasonable alternate perspective – thanks.

  • dynamo

    Great post, thanks Fuji-san, and you are wise to caution on the dangers of an overly bearish case and discuss probabilities – I have really enjoyed all your posts so far and am enjoying learning from you!

    I know we have all felt the frustration of being bearish at the wrong time and waiting in vain for a bigger fall than the market delivers, so I am prepared to make money from a shallower drop if that's what unfolds.

    My personal preference is therefore to target the area of the early July breakout for the bulk of my puts and spread out in time for the lower theta to Dec and Mar – if we do get the H&S you predict, I win and have 2 chances to cash out under 900 on the SPX at the neckline. Wouldn't that be something if we get another bear trap H&S!

    With the longer-dated puts, if we go up from here for a couple more weeks before falling, I don't have the stress of running out of time before October (although granted, you are selling 90 puts against the 105 high delta puts for a positive theta).

    If the H&S doesn't happen and we go down further as I think we will by early next year, the higher delta on my midrange puts will lead to faster profits as we fall, and having just a few lottery ticket OTM as a SMALL proportion of my portfolio would be icing on the cake. However, if it's apparent that a larger drop isn't likely to happen (although that will be a tough call!), I have time to cash out of my Mar cheap OTM puts with low theta at below 900, benefiting as you say from the higher IV that is likely to come once congress start screwing with the market.

    Not disagreeing with you at all, would really appreciate your take on a different strategy!

    One question – how reliable is it to consider open interest? You say it has served you well in the past and I respect that but I've heard that it can be effective as a contrarian indicator, particularly during these crazy times of market manipulation.

    Isn't it also true that large put positions are often a reflection of huge optimism because they are bought as hedges to protect huge equity positions? Hence, the smaller PUT open interest you are seeing might mean that fewer of the big boys are fearful and have smaller equity positions?

    Any thoughts after the long weekend would be really appreciated! Thanks so much for taking the time to caution us and discuss risk/reward!

    Enjoy your weekend!

  • http://trading-to-win.com/ DavidDT

    great post, thank you
    Glad to see that you open to various scenarios now.
    In about one/two weeks time I'll be able to calculate most likely upside target for w5 daily (shall w4 confirm)
    Without having low point of w4 I can only calculate so called “Ultimate theoretical target” and it would be SPX 1265 by mid November/early Dec (and that seems to be slightly far fetched)
    Coincidentally, that very same area is an extreme price/volume congestion for a long period before Oct 07 meltdown started.

    http://screencast.com/t/GRmnxSRBOPm

    shall we ger really deep retrace next week to 960 area, most likely upside target for w5 would be 1070 (1120 was my long term target starting back in March, unfortunately I, just like a lot of people here, got caught by very shallow 23% retracement of w2 and did not use that price swing to my full advantage)
    As for possible downside target for upcoming w5 weekly of down sequence I am maintaining 584 (which is “Ultimate target” and cannot be refined unless w4 up weekly corrective wave will be completed ) for March/June 2010

    P.S. Just had a good laugh – “Dynamo” came up with wonderfully realistic term for H&S (as well as a lot of others “make believe” patterns) – “bear trap H&S” – how lovely, ty Dynamo :)

  • nhsadika

    Awesome post. I forwarded to my dad who's using newsletters to buy naked put recommendations that don't make money until a drop of 16% on the underlying…lol. Probably too complex for him.

    BTW, Bob Prechter was interviewed for Financial Sense Newshour this week, hats off to Jim Puplava for allowing the “deflationist” onto the show. http://www.financialsense.com/fsn/main.html

    Thought this would be interesting to everyone here.

  • tranchefoot

    You're posts are always worth the time. Thanks, Fuji! Have you tried the above COMAS using woodies instead of persons?

  • TheMacroEconomist

    Hi Fujisan, just great options analysis charts as always. As they say a picture is worth 1000 words! :)

    There's one salient point I'd like to add regarding the December 70 naked put options analysis (vs. December 100). This in case anyone might try to misinterpret the writeup and assume that IV expansion might also apply to the 70s.

    The volatility expansion play would work for December 100 SPY puts, because they are near-the-money and sit near the bottom of the “volatility smile” (the iv_study.png chart). Their IV is around what the VIX is today.

    If SPY goes to $87, not only will the smile change to bottom around 35%, but the December 100 puts will move far into the money – and so further UP the right side of the smile. This should allow the December 100s' IV to at least match the move in the VIX (despite some skew in the base of the smile, which seems to be a SPY trademark).

    This volatility expansion play would not work for December 70 SPY puts because they are sitting high up on the left side of the smile. Their IV today is already in the low 40s (exact figure was in the post I made for Amotka Thursday night). That says the VIX should be in the low 40% range if SPY goes to $70. Seems reasonable since low-mid 40% was where the VIX was back in February and March.

    So again if SPY goes to $87, the smile bottom changes to around 35% – BUT the December 70 puts find themselves moving DOWN the left side of the smile. So what does this mean for a change in their IV? On net probably very little! My guess is that if SPY's ride down was a bit disorderly (in good October fashion) and you actively manage the position, selling at the right point to catch an intraday VIX spike, maybe you'd pick up 10% more IV – into the mid-upper 40s on the December 70s.

    Of course any such VIX spikes would also help out the December 100s, on top of the >25% IV expansion they were already riding by virtue of starting off near the bottom of the volatility smile. The catch with the December 100s? More time-decaying capital at risk. Last was $5.15 for the December 100s vs. $0.38 for the December 70s.

  • marketmaker

    Damn fine analysis.

    You could go to a $5000 3-day seminar and not learn as much.
    ________________________

    Fellow evil lair denizens, take a look at the transports. They suggest more upside:

    http://finance.yahoo.com/echarts?s=^DJT#chart1:…

  • Dan Robbins

    Oh, I got my name in print! (had to show my wife and say, “see, I'm not playing online poker during the day”)

    Glad I could help out after all the great posts you've put up Fujisan!

  • Implosion

    Great post. How did you get the histogram of COMAS to show up on the TOS chart?

  • Vardoger

    Good post. I feel compelled to mention to any newbs out there that “naked” puts usually refer a strategy where a option writer sells put (or calls) that are not secured by a position in the underlying- hence “naked.”
    What we are talking about here is just a put imo. Naked positions can wipe out your entire account and put you in debt rather quickly, whereas regular options you only can lose what you paid for the put.

    FWIW- I've been trading OCT puts and starting next week I'll probably use NOV's, IMO it allows me to profit from the VIX based on the time value in my options but is close enough to stimulate demand from buyers. Ideally, I sell front month puts to spread my position at support if a short term rally is coming. If I am right and the market rallies- even just a little bit, the front months I've sold will lose value very fast due to time decay, less demand, and the volatility being sucked out of the market. I did some research using thinkback on P1 and found that the best % returns came from options that were just in-the-money and about 1-2 months out- at the target. QQQQ's outperformed other indices. I am using Q's, SPY, and XLF puts and my near term targets are 35, 900, and 11 by late October. Cheers

  • Vardoger

    Thank you for the study Dan.

  • suzor

    “I see many of you have loaded Dec & Mar OTM naked put options and I would like to point out a couple of things before you load up more OTM naked put options.”

    Fuji, thank you for this excellent work. You are talking about people buying puts in the above quote…yes? I ask because the words “naked” and “puts” always meant selling puts to me. Forgive me for such a basic question.

  • Dan Robbins

    Looks like the full study didn't make it into Fujisan's post. Here's the entire code:

    # My version of COMAS

    declare lower;

    input price = close;
    input length = 3;
    input mydisplace = -1;
    input displace = 0;

    def fastAvg = Average(price[-displace], length);
    def slowAvg = Average(price[-mydisplace], length);

    def value = fastAvg – slowAvg;

    # Histogram Magic

    def longsignal = if (Value > 0) then 1 else 0;
    def shortsignal = if (Value < 0) then -1 else 0;

    plot long = longsignal;
    long.SetPaintingStrategy(paintingstrategy.histogram);
    long.AssignValueColor(Color.Green);

    plot short = shortsignal;
    short.SetPaintingStrategy(paintingStrategy.HISTOGRAM);
    short.AssignValueColor(Color.Red);

  • http://www.aggressivelyuninformed.com nepharis

    “Naked” only means uncovered. Buying a single put or a single call is a naked long position, and selling a naked put or call is a naked short position. In this context, long/short refers only to whether you bought or sold, not the direction of the underlying you profit from (eg, you could say “I'm long the SPY with a naked 0short put position”). Naked shorts are much more dangerous than naked longs, obviously. Most option spreads (verticals, calendars, diagonals, butterflies, condors) are covered positions, and have a much more well-defined risk characteristic.

  • http://www.aggressivelyuninformed.com nepharis

    Var, naked options can mean either long or short positions, here Fuji is talking about long naked puts (the MAR10 60s that we've been loading up on).

  • Teich50

    Nice post Fujisan.

    Since I am betting that ~SPX 1050 is the ST top, I opened an SPY Oct 103/114 bear-call spread yesterday. The breakeven is SPY = 105.2 . I'd probably leg in and out of the Oct 103 call between now and expiration.

    http://obamagirl7.blogspot.com/2009/09/market-t… .

  • dust13

    I recall Mole mentioning the march 70 puts, but not the DEC70 puts. I don't think Dec 70 puts would make sense, too risky, maybe DEC 90 – 80's puts. However why even take a chance? go with March puts

  • molecool

    Exactly.

  • molecool

    I've taken the liberty to send you an invoice. Three easy payments of $999.-

  • http://twojackstrading.blogspot.com TwoJacks

    Bears = Custer
    http://twojackstrading.blogspot.com/2009/09/bea

    Last stand, you know, for now

  • http://www.genxantihero.blogspot.com LostIllini

    Fuji, I'm seriously considering going long yen on tuesday, your thoughts as a swing trade?

  • Vardoger

    Captain Obvious- Thanks. It isn't theoretical astrophysics. I find it a bit arrogant to over complicate something simple but maybe that's just me. I was only trying to make sure new option traders don't start getting crazy with “naked” puts when the average investor just calls them PUTS. When traders I talk to say naked I assume they are naked as if- wow if this goes against me I am totally fucked.

  • Dan Robbins

    I posted the full code in one of my comments earlier. To add it to a TOS chart, right click on a chart, choose studies, then edit studies. In the lower left hand corner, click New Study, give it a name, then paste the code in. Save it then add it to any chart you desire!

  • rhae

    I do not get to excited about distant targets… Because nobody really knows where the market is going… We think we know where it might go, or it should go… So I am mostly concerned with short term low risk set ups.
    The $VIX is my most importent sentiment indicator.. So I watch it…
    Just a $VIX 60m with a Synthetic Vix indicator on it… why not, a vix on the vix..
    Will it work? maybe… Just know where yout R/S levels are…
    http://screencast.com/t/BKz9q7Qgz3V

  • spudthorpe

    Thanks for the post, Fujisan.

    I think the people buying far OTM puts are speculating on a major decline – that is, they are not taking positions in anticipation of SPY 87 per your example; they are taking positions in anticipation of SPY 60. If this does occur, OTM puts will yield a higher return than ATM puts. If it doesn't occur, of course, they stand to take large losses; thus they should only invest their speculative capital.

    When you speak of “probability of success” that the market will hit particular price targets by particular dates, I imagine you're assuming a binominal distribution. But the people taking this bet don't share that assumption – they believe (as do I) the market is severely overvalued and headed for a crash, in which case the odds of success are much higher than a binomial distribution would indicate.

    I've brought this up a couple of times before, but let me remind everyone that the tax treatment for gains on cash-settled index options is MUCH more favorable than gains on equity or ETF options (e.g. SPX options are better than SPY). This can make an enormous difference in your final profits.

  • marketmaker

    What I meant to say was, this analysis is almost as good as Moles!

    An invoice? No can do. I need that money for March puts!

  • molecool

    I couldn't have summed it up any better. Now get yourself a decent avatar and please come back often.

  • Vardoger

    Thank you for an intelligent post. I'm not familiar with the short-term tax law difference on index options, would you please elaborate?

  • fballislife

    You also can't forget to mention that the OTM puts are very long-term. People buying them, as I do, will probably get rid of many/all by December/January and take advantage of the theta left in them. Keeping them any longer will burn up the theta left. So, SPY 75/80 by year end wouldn't be an awful thing

  • Offtimer

    Why do you refer to the puts purchased for SPY in Mar 2010 @ 65 & 70 as naked. I can see someone selling such an instrument without owning the underlying being called such. Moles purchases and suggestions to do the same are I do not believe naked.

  • spudthorpe

    Thanks for the compliment, Mole. Maybe you can make like Tim Knight and provide an attractive default avatar. (Tim uses a demoniac picture of Hillary Clinton).

    Vardoger, cash-settled index options (in fact all cash-settled derivatives) are taxed at 60% long-term and 40% short-term capital gains regardless of holding period. Equity and ETF options are taxed depending solely on the holding period. For holding periods less than a year, then, cash-settled derivatives are subject to much lower tax. (For holding periods over one year, the reverse is true). If you are a logical person, none of this will make any sense to you. Welcome to tax law.

  • Offtimer

    Great clarification on running around naked.

  • neophyte

    Essentially, futures are not treated the same way as equity/etf's etc where for tax purposes trade b trade p/l is generated and time is determined for a long term capgain tax rate or short term. Here is a ink for a better understanding

  • neophyte

    Mole, have been a lurker for a long time. Appreciate the effort that you and some of the others put in to keeping this blog top notch.

  • amokta

    http://www.financialsense.com/fsn/main.html puru saxena in particular feels we are in a bull market for at least 3 years. also feels inflationary pressures rather than deflationary. He seems more reasoned than others, hence my mentioning it – goes against elliott view?

  • toad37

    How can you get a better avatar than Dio?

  • HalfNuts

    hi Fujisan/all,

    I'm curious as to your thoughts about credit spreads for September with only 9 trading days left. I'm looking at SPY being range bound through opex and wondering your thoughts on SPY 97/99 Put and 103/105 call for an iron condor credit spread. Max loss is $1 and max profit is $1 dollar and probability looks to be 30%. Chart attached. Interested in all comments.

    http://screencast.com/t/hrC7RXAjfY

  • Lordted

    Good charts as always Fujisan.

    How can you run out of Ukiyo-e? Like running out of flowers. I like Microsoft Island though it's where we dream of going once we've got all our cash back from the markets. I always view any losses as a loan to the markets. One I will always get back. Have a great day off US.

    From all us loonies in the UK.

  • TheMacroEconomist

    I myself would only write that iron condor if I were looking for passive income and really confident in support at 98 and resistance at 104. Reason is that I think a disciplined active trader will see a number of directional intraday/swing setups in SPY with reward to risk ratios well over 1 to 1.

    Is the 30% probability based on historical volatility, or implied?

    Either way, if your TA gives you confidence in the range > 30% then the iron condor would be a good deal. I will say there was lots of traded volume at 98 to support that floor, whereas 104 was the wick of a few extended candles.

  • steveo77

    http://www.astroprofile.com/2009mercuryrx.htm

    Sunday the 6th starts the Zeal of Mercury Retrograde. The Astro Freak stuff is interesting, and you don't have to believe it, but I highly recommend you follow this advice — you know you ought to be doing it anyway, so backup up your computer systems.

    During Mercury Retrograde, technology, communications, and transportation breaks down. It really does. Last retrograde in May my stalwart computer “blew up”, it wouldn't even give me the blue screen of death. Another blog participant indicated that same thing happened to him.

    Again, you don't have to believe it, but this is a great time to do what you know you ought to be doing anyway.

    I have posted a 2 page list of “Dummies Guide to Trading System Backup” on my blog. I hope some of you appreciate having this compiled all in one place. I sacrificed a few sun tanning hours just for you.

  • marcus2008

    To you Prechter lovers:

    Ask some of the old-timers before you give good money to EWI …

    Prechter has been declaring deflationary depression since 1988. He was wrong 20 years, then he got right 1 year and became an all time guru:)

    In March 2009, he said to cover shorts because counterparties to short transactions would be broke and unable to pay … he got right by accident and then claimed to have predicted the March bottom.

    Their newsletters are a bunch of sociology crap. If you want to trade based on what color vehicles people buy these days, then sign up for Prechter & Co. and suit yourself

  • steveo77

    So that makes sense as to why the indices are gamed so much. These are serious tax advantages.

  • Vardoger

    Thanks Neo- Yeah I like Fut's for many reasons, that being one. What I was more interested in is the difference in tax implications between having SPX puts and SPY puts though.

  • steveo77

    Did you lose money betting on their advice?

  • Vardoger

    Are you some GS designed anti-intelligence misinformation trading bot?

  • TomOfTheNorth

    The March advisory was stated as anticipating a bear market rally. Pretty good call…..

    As for looking for a deflationary depression since 1988, one could argue that Japan has been in one since shortly after that.

    Therefore, I think your criticisms of Prechter's calls are misplaced (or at least poorly argued )

    I haven't subscribed to the newsletter however – that's a different matter entirely.

  • TheMacroEconomist

    No analyst has a crystal ball. Different guys have different ideas. Examine the evidence, decide what thesis you believe, and go with it – understanding that there are no guarantees.

    I subscribe to the parallels between the 1922-1942 Dow and the 1992-date Nasdaq. This says we're currently in a rally within a 5-year bear phase. I first recalled this written up over 2 years ago when nobody else believed it! Let me find the link for that article:

    http://www.signaltrend.com/Stock-Market-Great-D

    If you extend the silver line with what the Nasdaq has done over the 27 months since, the correlation becomes even more uncanny. 1937/2008 meltdowns then big 1938/2009 rallies.

  • TheMacroEconomist

    Socionomics is not sociology!

  • rhae

    IMO EW is like a Religion, You believe or you do not. I think it has some value, like fibonacci … a lot of people follow it world wide…. Just another tool in the tolol box.
    Let me get this right? If near a critical r/s level …and a fib lines up …and the 50 ma tags, and EW swings perfectly.. Prechter is a Genius, make little difference to me.

  • TheMacroEconomist

    My understanding is that the IRS has never ruled directly on index ETF options, leaving them possibly in a grey area on this issue. However, IRS has ruled that ETFs themselves are securities just like equity stocks. So by extension index ETF options would be taxed based on actual holding periods just like equity options. That's the current thinking

  • springheel_jack

    Still had repeated failures recently for the transports to confirm the new high in the Dow.

  • springheel_jack

    Ok, here's my plan for next week guys.

    Obviously we may head up further if we aren't making the RS on the H&S that may be forming on the SPX. If so, I will drop a few points shorting 1015, but can make it back as we either make the double-top, or proceed to a new high further up.

    If we are making a new high we'll know quickly when we break 1020 and that means that we get an even better shorting opportunity further up.

    If we are making the RS, then we may hang around just under 1015 for much of the week, with repeated tests of resistance and falls back. That would of course be scalper's heaven as there is nothing better for scalpers than putting in a few doji days.

    After that we would fall and there should be a good 35 handles to be made from 1015, though Sol's predicting fifty of course.

    If we do follow this scenario, then there is a good possibility of making +60 between scalping and shorting, which is an opportunity you don't get every week.

    So far though, we have just made the predicted return to 1015 on low volume. There is no reason to think that is a particularly bullish sign.

    As Atilla pointed out as well, we just put in a hanging man candlestick on the SPX weekly, which is bearish.

    The wild card here is USD, placed just above support. If it breaks through, then in all likelihood we make new highs on SPX.

  • grednfer

    The puts that you would be selling just dropped from 2.1 to .85 in the past two days when the vol (VIX) dropped 15%. You can do it, but you would be selling at the bottom (of price and vol)…so to speak. Condors, which are just straddles with wings, are high flying birds so its better to sell into high(er) vol.

    You have the right idea……but the day for this trade was Tues or Weds when vol was elevated. (sell high vol, buy low vol). You would have made an EASY $500 from Weds to Friday.

    Something to watch though….the Sept. put prices seem to have bottomed here on Friday……which indicates they may come up.

    What I would recommend if you're new to Condors…..FYI its easier to manage one side (puts vs calls)….so watch the put pricing and just sell a few OTM puts into an elevated VIX…..If what your looking for is $500, I'm sure you can find it.

    Hope that helps.

  • springheel_jack

    Something to amuse everybody. Check out the following at despair.com.

    Everyone's seen motivational posters, check out the demotivational ones. There are some real classics there:

    http://www.despair.com/viewall.html

  • grednfer

    I'm always looking for passive income…..who wants to work for it….send it on over.

  • Market_Technician

    Q: If corrective patterns typically terminate in a previous fourth wave, that is, the fourth wave within the preceding impulse wave of the same degree, how is it that on an intraday basis, for instance, on a 120 minute S&P 500 chart, the abc correction goes well beyond the previous fourth wave within the preceding impulse wave?

    To elaborate, I can count five waves down from 2 (Y) C on an S&P 120 minute chart. And I can count an abc correction. So I look for the previous fourth wave, it is @ 1000, but we're actually near the previous, previous fourth wave near 1015 or so, that is, wave iv (circle) of 2 circle of Y of C. However, on a daily S&P 500, it's a textbook wave (ii) stalling near a previous fourth wave. Mole has this area highlighted in yellow in a previous post.

  • Fujisan

    No, I have not used it for woodies – have you?

  • Fujisan

    My apologies – I added it to my posting.

  • Fujisan

    Thanks for pointing this out. Appreciate your input.

  • Fujisan

    Oh, you had a much better entry on Wed when USD/JPY hit a double bottom — well, watch the market Sunday night (Forex opens up on Sunday). I don't know what is your timeframe, but 4 HR stoch seems to be ready to turn (down) so you can wait for a better entry.

  • Fujisan

    Come out more often, Tom!

  • Fujisan

    I'm watching exactly the same market correlation as you do…..

  • Fujisan

    I'm glad that I'm not the only one…..

  • wex

    Your best bet is to check the cboe site. My understanding is that SPY is a security and treated as cap gain or loss. Futs. I believe have a 60-40 split long term /short term(might be reversed) no matter how long you have held the position. There is a good site greencompany.com it's an accounting firm that specializes in traders. Should have some more specific info for you.

  • Fujisan

    Oh, is that the name of the island? (see, I didn't even know the name of the island when I put it it).

    Btw, are you following US Open?

  • spudthorpe

    Vardoger, all cash-settled derivatives (including index options such as SPY puts as well as index futures) are treated as 60% long-term capital gains and 40% short-term capital gains regardless of the holding period. Equity and ETF options are treated as long or short term capital gains simply based on the holding period. Thus if you are holding more than a year, equity and ETF options give you better tax treatment. But if you are holding less than a year, index options have better tax treatment. It's a substantial difference – it can easily be 10-15% of your final profits.

  • http://stainlesssteelchicken.blogspot.com/ StainlessSteelChicken

    Post a chart, mate — odds of getting a response will be much higher.

  • http://stainlesssteelchicken.blogspot.com/ StainlessSteelChicken

    Uh oh, sounds wike somebody wost some munny and needs their ba-ba…

  • http://bullorbearwhocares.blogspot.com/ jamesmarkii

    bullish case= we must clearly break above 1016
    bearish case= must clearly break below 991

    its as simple as that

  • Jigsaw

    Always wanted to find a stock that may get to zero and load up on OTM puts for around .05. This is one of my top picks (target time 2-4 months)
    DTG – http://screencast.com/t/9i6xZAB2Uhxg

  • rhae

    thx steveo… yup Mercury can provide interesting times… toss in Saturn Uranas and the Full moon, mid month and we have a real witches brew. It makes one wonder about Gold and Silver zooming to the moon without the help of Uncle Bucky… who knows what? In the next couple of weeks…

  • http://zstock7.com/ zstock

    Hi Fujisan, I've already calculated the first chart, and I come up with Head and shoulder going forward—Nice work!

  • http://zstock7.com/ zstock

    I can usually use NEM to tell me when to go short GLD,
    and the other gold stocks, this time it's different–
    Here's what's bugging me. A $47 to $51 short sell range
    http://retracementlevels.zstock7.com/

  • steveo77

    I bet you noticed I have the moon phase as a permanent part of my blog…..animals (including people) get sketchy around full moons, but I noticed that no moons actually seem to have a more pronouced effect in my personal observations. Have a great labor day weekend.

  • ultrabear

    Great effort, Fujisan – food for thought. Keep 'em coming, please.

    Posted a 5 min chart showing the fibs on the last thread – to me it says high prob wave 2 complete at ES 1016, wave 3 down at the open on Tuesday. Good to see not everyone is bearish for next week though. We need more sellers on the sidelines…

  • ItsOnlyPaper

    Don't Put Saturn in Uranas!!!

  • molecool

    Crazy chicken…

  • molecool

    LMAO – snort!!!

  • humble1 ™

    this article at bloomberg helps explain why unemployment at these levels is so stock bullish, something i have been yapping about for months. note that HSBC is now saying that GDP could be as high as 6% for THIS quarter and productivity gain above 6.6%! anywhere close to these and earnings will be enormous. corporate balance sheets are already flush with cash equivalents; stock buybacks and M&A would explode:

    http://www.bloomberg.com/apps/news?pid=20601103

  • spudthorpe

    Oops, I mean “index options such as SPX puts” in the post above, rather than “SPY puts.”

  • RobinT

    Fujisan, there is a way of hedging this strategy and make it totally immune to time erosion. It is what I am planning for October. It is called a split strike short synthetic. I am assuming that everyone here can trade futures and has margin availability as those that don't will not be able to do this.
    What this strategy entails is the sale of calls the same amount out of the money (less a bit to cover the spread). So for example. If we were at 1025 ES, you could buy the 1000 put, and sell the 1050 call for the same premium. (actually the spreads would mean it would cost a small amount). If you are talking about the 900 OTM put and we were at 1000 ES then you could sell the 1100 call. If you wanted no cost then you would sell the 1090 call. This strategy works in any month. I am looking to do the 1000 put and 1050 call in October, probably next week.

    If the market goes below the price you started the strategy then you go into profit. However, as you near expiry then the put has to go into the money for there to be any profit, but, if you stay between the strikes (in my example 1000 – 1050) then you just break even or lose what it cost you.

    If we expired at 950 then my example would make me 50 points profit (assuming I paid nothing for the 1000put – 1050 call strategy).

    If you are playing the March 70 puts then you could be selling something like the March 1250 calls and be putting nothing in.

  • JACKTRADE

    Great trade! low risk very high reward.

  • shortcover

    when i worked as an analyst at a Private Equity shop a few years back the Managing Director put some of these up in the conference room…most of the time the clients (prospective investments, not investors) we had in there never noticed. but sometimes they did if the wait was long enought. it would always amuse us…

  • springheel_jack

    But at 1015 that's a play with good odds.

  • springheel_jack

    They're great. I use them as a screensaver every so often.

  • amokta

    thanks. i have seen these correlations also, just that the longer this rally goes on the more folks believe we are over the worst in the stock market. Time will be the great healer, i suppose!

  • http://bullorbearwhocares.blogspot.com/ jamesmarkii

    id probably hedge a bit
    Oct puts vs cheaper sept calls….

  • old_lefty

    Fusian, nice work.

  • HalfNuts

    Thanks for the input GRED and TME….very useful

  • marcus2008

    I have to give Prechter a salute, he knows how to hypnotize people, no wonder he's filthy rich selling newsletters without having traded a share for 20 years … to this end, yes socionomics is a blast!

  • marcus2008

    No, I do not follow his advice.

    btw – you're not aone of the subscribers (good for you!) otherwise you'd know their advice is not tradable

    they're sort of a think tank my ass, Prechter is so smart you have to pay fee to hear his philosophies kind of service

  • marketmaker

    Did I steal your avatar, or did you steal mine?

    I'll change it if you were here first.

  • Joe8888

    This monthly chart on the SP-500

    Is to show the SIMILARITIES on the 2000 fall and the 2007 fall.

    http://www.screencast.com/users/chartwiz/folder

  • ultrabear

    You misunderstand – it's not wave 4 that is the target, but wave 4 of 3 of the previous impulse. If you check the S&P, that's more or less what we hit last Friday.

  • BigIslandLife

    MOLE!!!!!!!!

    Check out Joe's chart for a monthly count, looks awful good and could explain alot

  • Matador11235

    You'd better make sure you aren't wrong about the upper call strike or you lose big.

    I'm also looking for a hedge to my March 70 SPY Puts. Going to use a Vert Put spread Nov 100/80. This brings my break even point way up into the 90s and eliminates time decay. Plus I still gain from increase in Vega just not as much. Buying 6 Spreads for every 10 – 70 Puts. Of course this does require a lot more capitol but risk reward is favorable. If you're totally loaded on 70 puts maybe sell some and buy some of the Put spread much higher probability, breakeven on the spread is around 96.47, positive theta inflection around 91.58. Just a thought.

  • NewTrader3391

    My evil in me says they go to 1200 first kill any remaining bears, and then kabush crash of the century. As long as people do not believe this rally and they are all protected by puts, they are going down. i think by the end of the year we are going 1200 and then next year is when real fun happens for the bears.

  • annamall

    Fuji, thanks for the great work! Couldn't agree with you more. I said the same this past week, as you only make a nice bump if the IV goes up, but if it goes down you lose 3 times as much. No reason to go out that far.
    I also agree that the run up is hardly over, we may take a small retracement but fund managers are jumping in on every pullback, they must not have the money just sitting by EOY.
    On this note I am sticking mostly to FX for a bit and am flat in equities. I still see a bump up to around 1050 rather soon.
    Have a great day everyone, I am off to the gym (AGAIN) LOL

  • Lordted

    No… I don't think it is… That is my little joke. USO yes. Saw ARod go out… Pity I like him. Also safina bombed out…. Just Rog and Raffa of the oold school left.

  • http://erikmarketview.blogspot.com/ Erik78

    http://erikmarketview.blogspot.com/2009/09/clos

    The reason the last head and shoulders Failed, was b/c the Leading index was giving a BUY signal at that very moment.

    jmo, fwiw

  • Market_Technician

    thx ultrabear for clearing that up; you're right: I misunderstood the rule. Only been EW'ing for about a month's time. Sometimes it's difficult to grasp the easiest of concepts, lol. thx again!

  • molecool

    Okay, the count in 2001 is wrong a bit because 4 can't push into 1. However, I do like the monthly pullback similarities as psychology and herd mentality was not unlike today (just that this time it's on a grander scale).

    Thanks – good stuff.

  • molecool

    “You'd better make sure you aren't wrong about the upper call strike or you lose big. “

    He'd probably never let it get that close – and a 50 handle rally in one day is possible but at this point less probable.

  • Joe8888

    Right you are Mole…….

    I left the count in there anyways on the 2000 chart,,,,i did notice that we never closed above
    Wave 1,,,,,,( we Pinocchioed )and i am really not a EW-guy,like you are……,,

    Now..is it that wave 4 can't go into wave 1
    or close into wave 1……?

    Thx

  • molecool

    Yeah – I have kept hearing this logic for months now – as I keep saying. At 1200 you're going to assume we'll go to 1500 first and then …. rinse lather repeat.

    You guys are going to be right until you're wrong and then you won't be able to catch the bullet train. Typical example of hindsight trading – you look in the rear mirror and that's what you expect to keep happening. If you believe that then you must believe the bear market is over.

  • spudthorpe

    I just picked this independently yesterday. I wasn't aware anyone here already used it. Did you have the same avatar? (I remember seeing your “333″ before.) If you're still using it I can pick another one.

  • molecool

    No, your current count is wrong as well. I see this as a Primary wave – not a 4th wave. Before I spend time explaining this for the nth time I suggest you read some of my Sunday updates which do lay out the current count quite nicely.

  • dynamo

    Agreed, and it fooled a lot of people looking to the SnP as a guide. Very interesting study, thank you.

    I also found last week that the SnP was misleading in not printing a minor wave v down on Sep 3 when the NDX, COMP and INDU all made a lower low that day.

    This week will be interesting for sure!

  • grednfer

    All this talk lately of long term puts inspired me to hunt down a good one for this group. So here it is…..
    The case for the long term put on the Russell 2000, Dec 2010. The future does not look bright for US small business. Let me know if you’re convinced.

    $RUT 20 Year Chart Points (see Chart)
    -Showing Long term (generation length) H&S formation
    -Breakdown from and the very recent back-test of long term up-channel
    -Nearly 50% retracement (600) from recent bear market low.
    -Recent Failure from level of top of left shoulder….top of left sphere.
    -FYI, those spheres are about 4 years wide.
    http://askins.mortgagexsites.com/xsites/Mortgag

    The Trade:
    -Buy $RUT 2010.12 600 Put (can use IWM too, just divide by 10)
    -If you want a free put, sell 2-1 $RUT 2010.12 600 Calls (spread how you want) to pay for put.

    Rational for the PUT:
    - Put pricing very near support on long term up trend line (see chart)
    http://askins.mortgagexsites.com/xsites/Mortgag

    - 5YR $RVX (Vol for R2K) ascending.. Currently at short term support and nearing long term support. (see chart)
    http://askins.mortgagexsites.com/xsites/Mortgag

    - Call pricing has ascended from recent 6 month rally to long term resistance. (see chart)
    http://askins.mortgagexsites.com/xsites/Mortgag

    I think this is a good long term trade, but as the fundamentalists say….the bottom of the ocean is littered with ships and they all followed charts. Anyway….one to watch.

  • dynamo

    Thanks for your perspective David!

    May I ask, is the “Ultimate theoretical target” of 1265 assuming w4 was 991?

    Also, if we make new highs this week (which I don’t believe based on Friday EOD action, but I’m hedged nonetheless), would that bring your target for a wave 5 high any closer and P3 bottom also earlier?

  • grednfer

    For some reason….my technical deficiency…the put and call link aren't working……I'll try again

    Put Chart:
    http://askins.mortgagexsites.com/xsites/Mortgag

    Call Chart:
    http://askins.mortgagexsites.com/xsites/Mortgag

    We'll see if that works.

  • grednfer

    I'm not in the 1200 camp. I think many fundamental realities will hit this market in the next month or so ……. and scare people away for a very long time.

    Look at the 5yr chart on the DOW or any index and convince me to go long.

  • Teich50

    Think put-call parity S + P – C = constant. If we are at ES 1025, buying the 1025 put (say) and selling the 1025 call of course suffers no time day, since P – C = constant – S = a synthetic short of the underlying.

    Working with the underlying and calls and puts, one can synthesize any “bet” one desires, but we'll need to pick the right one for the situation. For example, to be bearish, one can either i) buy puts, ii) short the underlying, or iii) sell calls.

  • http://chaugner.blogspot.com chaugner

    Fujisan, amazing post and very sorry to see you go here. I hope you will stick around at least =)

    You went through a great amount of detail and effort to outline what you are expecting and how we can take in additional information to profit from this move. I always like your posts because they bring me back inline as they usually differ from my longer term views – but its great seeing your side especially with the proper justifications and trade plans and a way to maintain the lowest possible risk profile while at the same time take some nice profits.

  • http://erikmarketview.blogspot.com/ Erik78

    http://erikmarketview.blogspot.com/2009/09/watch-tran-this-coming-week.html

    I just ran a comparion of all the indexes, and for the immediate term (ie next week) it sure looks that the $TRAN holds the key here. (chart above)

  • dynamo

    That’s really useful research, thanks, will be watching it myself!

  • Trader_Steve

    He said to cover shorts in February.

    So what else are you wrong on?

    In a court of law your testimomy would just have been labeled “not credible.”

    Steve

    P.S. I am not an EWI subscriber

  • http://trading-to-win.blogspot.com/ DavidDT

    “Ultimate theoretical target” is calculated when no 3 and 4 formed yet, but it is way less reliable than target calculated based on confirmed w3/4

    Anyhow, per your request…
    Presuming that w4 low would be at YOUR 991 requested target :) – w5 target based on 1.62
    would be…CRAP – I JUST CALCULATED IT AND IT IS 1252 !!!!!!

  • http://trading-to-win.blogspot.com/ DavidDT

    sorry to find out about your decision
    if nothing else – blogging is very unrewarding business, needs time, emotions, dealing with people and sometimes it even interfere with trading.
    Hope you will still be posting in comments section

  • dynamo

    Thanks, that’s interesting! Perhaps I need to buy some Mar calls and June puts as a spread and look away for a couple of months to see how things are developing!
    I guess we’ll have more of a timeline too when w3 and w4 are confirmed, thanks!

    Anyway, like you, I am hoping for a deeper W4 next week or the following week for some short-term rewards after climbing this wretched mountain :)

  • dynamo

    Lot of talk of the pros and cons of long-term OTM puts, and lots of valid points I've really enjoyed reading and learning from.

    Thought I'd add a few thoughts of my own to the discussion…

    Think Mole's point is that, with such low theta, long-dated puts allow you to be patient to wait for the plunge when no-one really knows when it will strike- you keep your hands off a portion of your portfolio and do not overtrade on every dip, reloading and paying commissions when rolling out to later months.

    You get to take advantage of what may be a once in a lifetime opportunity when a drop of historic proportions makes everyone choke on their lunch, then you get to buy everyone lunch!

    Does it really matter if you lose a little due to the high vega during temporary Summer dips in the $VIX while politicians are not talking the market up and down? It's only a problem if you believe the VIX will plunge from here. The following chart supports Mole's point that this is the ideal entry point since a low VIX makes premiums so small:

    http://tiny.cc/TQIQH

    As frustrated as Mole was last week with the MM's games with options premiums, he still saw through it and pointed out the opportunity of lower premiums to his faithful rats!

    Having some money tied up in cheap OTM long-dated puts is a good idea for a low risk, high reward potential IMHO.

    Granted, it is speculation you don't want to bet the ranch on, but has a part in my portfolio for the theta I save, the peace of mind of knowing my timing can be off, and the incredible leverage if targets are hit.

    Having some other money free to play both sides around key support and resistance levels, and buying higher delta/gamma options is also fun and can be profitable (but also more risky if a position moves against you while theta burn increases closer to expiry).

    I also like to remind myself that cash is a position too, particularly when you wake up one morning to find the gov has placed a ban on short-selling or they fudged an important economic report!

    Good luck this week everyone and for the next 6 months you March putters !

  • innatedc

    Well if no one is asking it….I will…..Why in the hell is Fujisan leaving us and what is Mole doing to try and keep her on? I fully respect its her perogative and none of our frickin business but hey inquiring minds want to know…….

  • dynamo

    Just read about your departure Fuji-san – that's a terrible loss, respect your decision of course, but would you not consider at least posting once a fortnight – your perspective provides balance, and you are a well of knowledge we all need to drink from!

  • http://trading-to-win.com/ DavidDT

    What separates professional trader from amateur?
    Pro has no loyalty to the trade.

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  • http://trading-to-win.blogspot.com/ DavidDT

    looks like iyt 62 next week

  • jayinasia

    Fujisan,

    Thanks for all your posts. Please let us know where you end up if/when you decide to come back.

  • molecool

    She decided to leave and that's her business – respect her decision.

  • molecool

    Thanks for that dynamo – seems everyone here has turned into a short term scalper of some sort. And there's nothing wrong with that – if you are really good at playing this game. But some people make it sound as if they have amassed fortunes playing the recent swings and – sorry – I just don't believe that – it's been erratic and extremely volatile.

    Yes, I'm predicting a deep drop later this year and early next year – if I'm wrong I will lose a lot of money but I'm prepared to take that risk. You can debate this to death and call it a gamble – and in a way it probably is – but it's a gamble based on my observation of the wave pattern, the state of the financial markets, and the economy as a whole. If I'm wrong – well, then I'm wrong – that's trading – there are no guarantees, otherwise we'd all be multi-millionaires.

  • http://trading-to-win.com/ DavidDT

    with you on drop below March lows later this year, just think it will be at the end of November, but just like you I already have about 5% of portfolio in March/June puts – I'd rather lose 5% than miss the ride.

    “But some people make it sound as if they have amassed fortunes playing the recent swings”
    Not fortunes – but it has been damn profitable since volatility came back. Agree that fortunes cannot be made swing/day trading – big money is in the big moves, still – some have to pay their bills while waiting for the big moves.

  • toad37

    All the best to you, Fujisan. ……/……

  • bergs

    Fujisan

    Your posts have been enlightening to say the least. Missing you already.

  • ew_newbie

    Me thinks a dispute within the ranks has caused an unfortunate division.

  • molecool

    I wasn't referring to you – this blog has become very bullish in the past few weeks. Just what you expect at the end of a bear market rally – people think they can outsmart the market but most follow the herd like everyone else.

  • lilme

    Fuji-san, thank you for all your clear and helpful posts which shone much light on options and how you approach them and the markets in general. Best wishes from one newbie.

  • http://trading-to-win.com/ DavidDT

    Oh, I did not write it because I thought you were referring to anyone in particular (I would never take it on my account because I call a lot of my trades before I place them)

    It is not that blog became “bullish” – market has taken a lot of juice out of people with common sense (bears as of now) – that is what market does – crowd is stupid, but powerful.

  • capitalisa

    There are so many holes in that theory, I hardly know where to start. How about with this: who is going to be buying all the widgets to produce these “enormous” earnings, when half the country is unemployed and underemployed, with wages being flat to down? Or maybe I should start with the myth of “corporate balance sheets flush with cash?”
    Not being disrespectful to you humble1, just that this theory is crap.

  • rhae

    I see a lot of kicking around the future here, fine… I have plenty of stuff in IRA acounts that do not get moved much… I said I traded 50/50 …50% long term and 50% gorilla. Just my nature, I can't do nothing… So for the Gorilla side, Tuesday morning, I draw on my charts which helps me get a feel for current market structure…
    SPY 60m, will any of this stuff work? Really aways just a work in progress… know where critical lines are…
    http://screencast.com/t/QpkxdWKcTrz

  • Offtimer

    Good luck to Fujisan our maker of markets.

  • humble1 ™

    but half the country is not unemployed; the savings rate has soared from 0 to nearly 6%, showing the consumer is getting healthier daily; the home affordability index is the best in 50 years; average hourly earnings were up .3% just in the last month; energy costs are much lower than last year; government spending (like it or not) is taking up consumer slack.

    there's more on the list, but that's enough for now. my purpose is purely to make money trading, not to defend or promote or moralize on any ideology, so please don't be offended when i say this:

    recognition (the wave?) is growing that the recovery plan is, indeed, working!

  • pierre66

    Oh, this is sad news! You have brought so much intelligence and wisdom to these pages – as most Asian women bring to everything……You will be sorely missed around here Fujisan, good luck to you!

  • fa_q

    I'm shorting a 1/4 NQ at 1640

  • fa_q

    That was the exact retreat bounce I was looking for from 1640 but there's just nothing going on tonight. Got out at 1637. $1500 in 10 minutes, not too shabby. ES still running. I like this play but there wasn't enough juice behind that kiss of 1640 – tells me nobody is playing tonight and I'm not going to mess with a whippy, skinny market.

  • Paleface

    Weekly VIX crawling on the 200 SMA and on a weak trendline with some long upper shadows. One more dip would be nice!
    http://screencast.com/t/BhUxLlY3Z

  • http://fatratbastard.com standard_and_poor

    Closed the 1% put position Friday for almost breakeven, still 5% short in etfs.
    Very much doubt it we drop below 900 when the the true correction occurs but
    will stil play the short side as odds favor a small market decline versus a small rally.

    Fujisan thanks for confirming my thoughts on the negligable odds of a deep correction.

    http://www.youtube.com/watch?v=DSPmb0a5vZA

  • http://fatratbastard.com standard_and_poor

    Make sure you use a stop on all trades especially on the large positions – I'm using
    a 1031 stop on for shorts, basis SPX. No excuses! Small mistakes can turn into big bloopers.

  • humble1 ™

    M&A starting to crank up: just in. the rejection is a sign the bidding war has started and it will probably go for more than the $17 billion …

    http://www.nytimes.com/2009/09/08/business/glob

  • fuw

    Nice post Fujisan, and to bad you are leaving. I've learned a lot from your writing.

    Sold a long scalp today for a nice profit, and continue to restock on longer term shorts (sold about half on latest move down).

  • rogerjarema

    New member for your blog, Mole. And yes, I agree with you on this. I saw the same logic that ended P1 (VIX had to rise first, bulls not yet capitulating, Buffett had not capitulated, etc2). At the time I was buying that idea and lost a HUGE opportunity to load up longs long after. Mistakes made, lessons learned.

    So, I really don't buy into that logic. That is just another form of thinking reminiscent of the present market cheerleaders: extrapolating trends to infinity. As you said, it's right until it's wrong. And when it becomes wrong, it will be wrong BIG time.

  • springheel_jack

    Great post Fujisan.

    Very sorry that you won't be doing your weekly post anymore. It is a big commitment for you though. Only so many hours in the day.

    Thanks for all your work & see you around.

  • springheel_jack

    Nothing official until tomorrow morning, but at the moment it is looking like it might be a poor start to the week for the bears.

    ES currently at 1018.5. If it moves much higher new highs will start to look much more likely than not.

  • springheel_jack

    Mole, is geronimo running today?

  • spicestory

    need more Ukiyo-e supply to Fujisan to lure her back :-) thank you for your great contributions, you are sorely missed

  • dynamo

    Amen to that, I'm with you on your analysis, and as you said in an earlier post, it takes conviction and short-term pain for the longer term gain.

    I think it's a good sign that there are skeptics, and the debate is also healthy of course.

    I personally think that the higher and faster they may drive this up in the short-term, the more likely that the crash will be monumental and the lower our risk becomes, although that will be painful in the short-term if you have money in the bear pit.

    My strategy will be to significantly add to my Mar/Dec puts the higher this goes up over the next week or so, as you suggest, then cash in that extra portion of my position if there is a significant short-term correction and a spike in volatility to reduce my risk longer term. I will then buy a few Nov/Dec OTM calls as I did in the mid 990s in the hope there is one last spike, but mainly as insurance to keep my bear paws off my long-term puts!

    Anyway, hats off to you for your conviction and thanks for sharing your calculated gamble with us all!

  • dynamo

    Nice chart, clearer than mine, thanks!

  • TheMacroEconomist

    TME <= devastated to hear that Fujisan will not be continuing her weekly posts. :(

  • Osso

    ….” last post in this site…” more than not doing her weekly thorough post…imv.

  • springheel_jack

    Time will tell Osso.

  • TheMacroEconomist

    Hey Jack, a comment on your next comment!

    It's all Globex trading on futures today, no open outcry, and there will be a midday and afternoon trading halt on all products. For stock indexes I think the halt is at 11:30 AM US Eastern until the usual 6PM night trade starts for Tuesday.

    The halt time for ag's, commodities and forex differs (PDF): http://www.cmegroup.com/tools-information/holid

  • springheel_jack

    Thanks TME. Much appreciated.

  • annamall

    Morning all, I thought I would take a moment to post my thoughts for the week. I mentioned on Friday that I got out of all bearish positions for now.
    The price action tells me that we are going higher. The $DXY is breaking down which is bullish for stocks. I also feel (that there is no way they will not push this market higher with Obama coming out with an important national speech on Wednesday. (can you say RIGGED???)
    For now, I am basically in no man's land, but looking for 1050 possibly 1100 sooner than later. I just can't put myself in front of a speeding train that every dip they come in and buy right away, we are points away from this years highs. Good day and happy hamburger's everyone! LOL

  • springheel_jack

    Hi Anna,

    The top channel on the massive SPX bear wedge is currently at about 1045. as Osso pointed out last week it wouldn't be unusual to see that break to the upside to a small extent before break down properly. 1070 possibly on the cards. 1100 soon would invalidate the wedge though, which would surprise me.

    I'm still not at all convinced that we are going up though. I think we fall from here for at least a significant correction but the bears have been disappointed a lot lately so who knows.

  • annamall

    Hi Jack! Good morning…well then my thoughts are confirmed. I agree we may see some downside, but every single nice drop we get is quickly gap filled. Last week for starters! :-)
    That did it for me for now, they are propping this tape up and the fund guys want their numbers to look good EOY. It's a game that the little guy has to have at least a small edge and right now as a bear I feel NONE.

    The futs are already up today and the $DXY is tanking again.

  • annamall

    No she (Fuji) is not coming back to post at all, just so you know. :(

  • annamall

    No posts at all Mac. :(

  • springheel_jack

    USD has an equivalent bull wedge, but there again there is plenty of room to drop within it.

    EWI now increasingly doubtful that USD has bottomed, and it is hovering just above support. UUP Dollar Bullish ETF chart as follows:

    http://www.screencast.com/users/springheel_jack

    We very possibly rise from here, you're right. I still think we'll respect the wedges that have been building over the last few months.

  • springheel_jack

    Well I am really very sorry to hear that Anna. She will be greatly missed.

  • byhiselo

    thanks fujisan, great work as usual

    learned to stay away from OTM options, in the money or sometimes at the money 2-3 months out works much better for me at least

  • annamall

    My Jing isn't working for some reason, darn it! But I have the $DXY possibly breaking down to 77.57 area. That is still some room down and will be very bullish for stocks. Last years low of 76.15 could be tested!
    I hate what I am seeing so I will not be doing anything but a few day trades, here and there.

  • Macrawn

    I have never seen so much hype about the sep oct seasonal pullback. Cnbc folks are speaking like it is just a fact we pull back. That fool I on during premarket I think his name is Joe said something about puts being easy money. That more than anything makes me think we don't pull back at all this fall. I'm not really bullish or bearish right now. I did buy spy when we dropped last week onthe dip and was a little nervous about it but we were oversold. I also bought ewh but got in too early. Closed both positions going into weekend.

  • byhiselo

    oh, i think we pullback and more than most are expecting

    not completely discounting new highs before the end of the year…or eventually…grin

  • ropey

    Hey anna, i've been barking about that big gap wanting to be filled at 105-108 for a while, that one has been open since last october and it's a beaut, i suspect they'll do it before earnings season kicks off early October or maybe earnings will be the catalyst to fill it – impossible to tell, if they roll the market hard, well i'll just re-evaluate. The trend is still up, i'm not a bull but just trading what i see. I think after that the market is going to have a serious time up since we're hitting the underbelly of the market before the crash and companies have already employed serious cost-cutting measures – intel said things were cool with their earnings pre-release a few weeks back – my take is sideways chop and very shallow climb up to end of year at an extreme stretch, . i think the market will be putting in a trading range here till '10 before the real crap hits the fan ( i.e. 950 ish to 1150ish). Too many people expecting a big dump still, i'm not in that camp but happy to be proven wrong.

  • Osso

    Hi Anna…..how can I contact her..??? tks…..take care !!!

  • annamall

    Hi Ropster! Good holiday! Yes,I see the same crap. No intentions of doing any long term trades,more than a day or two,they don't work!
    You get some profit,just to give it right back if you're nimble. LOL
    I am also quite aware of the fact that it may be a pandemic of the H1N1 virus that could really royal the markets this winter (just my mind working)

  • ropey

    Listening to NY Public radio this am – all about trying to find jobs, resumes, how to keep clients etc…

  • peder1001

    Hi Anna,

    Was travelling on friday and was glad to see my oct. puts were filled near the high of the day. I do expect a little upward movement next week, but believe that it won't get much higher than 1050. I think the downfall will be pretty hard as seen by last weeks drops.

  • annamall
  • annamall

    Hi Peder, good for you! I see at least 1038 retest this week, if we break above even more bullish. I will not look for any long term significant drops until next year. Keep your eye peeled on the $DXY

  • springheel_jack

    Well I hate to say it Anna, but as you can also see on my UUP chart, that last candle was a very ugly bearish engulfing candlestick, suggesting strongly that more USD downside is coming.

    If kemal_1 is right about EURUSD, we could be looking at a drop to 74 or below.

  • annamall

    Hey Osso, can you give me your email and I will send to her? Or I will ask her if she minds giving it out? i always like to check w/peeps first. :)

  • annamall

    Yes, she will be missed very much Jack, she and I are in contact.

  • marcus2008

    I was only coming here most weekends to check out Fujisan's insights … now she's gone and this site is going in the can … sorry

    Btw – seems many of you didn't go to kindergarten … so, evlspeculator makes up for the void

    If you put on Prechter once a month, the circus will be complete

    So long!

    Elliott waves are mental masturbation
    Elliott was a nutjob

  • annamall

    That's what I have been screaming. They (FED) are manipulating the $DXY and Obama needs new highs for year to make his healthcare case, can you say RIGGED? ;-0

  • Lordted

    Good morning America how are you?

    FTSE was up 1.72% today (that's the UK index folks) so a decent rise could be on the cards for the US tomorrow??

    Reading lot of stuff about Fujisan?…. Pity. Was always honest, open opinions and exceptional posts

  • annamall

    so then gone you shall be!

  • fuw

    That's a pretty strong statement, or what do you mean with “long term significant drop”? Below 950, 870 or 800? I wont bring 666 into the discussion ;)

  • fuw

    That's a pretty strong statement, or what do you mean with “long term significant drop”? Below 950, 870 or 800? I wont bring 666 into the discussion ;)

  • fuw

    *Cough*…asshole…*Cough*

  • annamall

    Fuw :-D That's for sure, sounds like it took one to say that right? he is banished.

  • annamall

    Morning Britain! We are hot! and laborless, how about you?? hahaha

    Oh yes, I am looking for that gap to 1023, then on to 1038.

    Yes Fuji is moving on. :(((

  • annamall

    Fuw, that is a ways off but could retest the old lows of 666, yes you can bring it up. Mole is on target with his timing, I am just not willing to let my trades stay that long. Better entries ahead IMHO. ;)

  • TheMacroEconomist

    Globex trading halts in 10 minutes (for 5-1/2 hours) but NQ is at 1647 up 11, and ES at 1023 up 9.

  • Lordted

    I suspected the market wasn't that weak… which was why I went to cash.

    Fujisan was nice person. Put in loads of work. And I don't even trade options.

    Guess I will have to make the effort and post some charts in future. I suspect Mole is getting pissed off with folks who don't post charts much. He's just lost a Good'n.

    This is still a great blog…

    See you Americans tomorrow

  • TheMacroEconomist

    I ran some stats late Friday and it seems like the bear months for $DXY are September and December. $DXY been down 15 of the past 20 Septembers for an average 100 pip decline.

    But interest rates are already near 0 with nowhere lower to go. So with the buck priced so low already compared to SPY, both cannot have their usual bearish Septembers this year IMO.

    Pick your poison: lower SPY or lower DXY. ;)

  • fuw

    Do we dare to ask why? Time or something else? I respect her decision either way, and am just curious.

  • springheel_jack

    No loss. Why are there so many offensive idiots who just post to abuse I wonder.

    Some people just never taught manners I suppose.

  • Anonymous

    Hi MM,

    I am not sure who stole the avataar. I am new to this site but have had this avataar now for about 4 months. If you have had it for longer, let me know, I will change mine.

  • Anonymous

    Hi MM,

    I am not sure who stole the avataar. I am new to this site but have had this avataar now for about 4 months. If you have had it for longer, let me know, I will change mine.

  • Anonymous

    Hi MM,

    I am not sure who stole the avataar. I am new to this site but have had this avataar now for about 4 months. If you have had it for longer, let me know, I will change mine.

  • The_Grim_Reaper

    I am in agreement with your short-term projections. The month of September should be bullish overall. Fund managers will probably want to catch one last train to boost quarter-end results. BUT, there will be a significant correction this year starting in early October or very late September. Q3 bank earnings are going to be terrible. This rally all started with bank “profits” and will end with bank losses (starting a new leg down).

  • Squidman

    Fujisan, If one of your objectives in contributing here was to improve the success of beginners like me at this profession than consider yourself successful on my behalf. I feel like I have been given the advice of a true expert and master trader with your insights and stragtegies. Your a wonderful teacher and I feel fortunate to have been your pupil. Domo arigato!

  • molecool

    Good write up – thanks Anna. This is pretty much what we're dealing with – tough to be a bear knowing that the tape is manipulated. Most of us know it'll break eventually and the only question remaining is how long the bulltard can tease this out.

  • LOONIE

    Annamall, sorry to hear that Fujisan won't be coming back at all. She is very good and I've been learning from her posts. If appropriate, please let us know where she may be next or whether she has “followers” without gmail. In the meantime, I will check AMBG. Please extend my thanks to her.

  • http://www.genxantihero.blogspot.com LostIllini

    Looking for targets monday…

    BARE essantials seems poised for a pop or a drop, volume suggests pop over strong resistance…

    http://www.screencast.com/users/lostillini/fold

  • grednfer

    So this summer SPX rally has me somewhat amazed and perplexed. I'm not an EW person……but is this how you count waves? I know the blue forecast lines are higher than they should be but its just theoretical.

    Any CONSTRUCTIVE comments would be appreciated. Thx

    http://askins.mortgagexsites.com/xsites/Mortgag

  • http://fatratbastard.com standard_and_poor

    Smart move being in cash.

  • http://bullorbearwhocares.blogspot.com/ jamesmarkii

    1046-1053 EOW targets (im feeling those unfortunately) I just want this mofo to correct and for real!
    Can i taste 880 once again….

  • http://fatratbastard.com standard_and_poor

    Advise for new traders,mkt.is continually in flux, believing and using excuses such as my trades aren't working because market is manipulated is futile and a form of complacency in disguise. We, self included, need to own up to our mistakes as traders and not repeat them.

  • annamall

    Ditto Jack!

  • springheel_jack

    Difference of opinion perhaps.

    Fujisan is a regular poster at http://www.slopeofhope.com & no doubt she'll still be there every so often.

  • http://bullorbearwhocares.blogspot.com/ jamesmarkii

    Im the most bearish person i know (an optimistic bear) my Dow 4000 pales in comparison to the Dow 1529 prediction i just WITH CHARTS to back it up..good lord its going to be brutal.
    Imagine everyones 401k's missing 90% of their value right now?!

  • springheel_jack

    Yes, regardless of whether the market is manipulated or not, we must play the market we have, rather than complain that it is rigged against us.

  • dynamo

    I agree the dollar could be weak in the short-term, possibly falling to 76 but I think we're talking a month at the most +Mole is right, dollar could also rally along with the market, or break up big when they pull the plug.

  • Trader_Steve

    We might have Tax Cheat Timmy's next magic bullet leaving his gun. Bush was full of crap when he would say he favored a strong dollar. Stocks have just about played out their upside potential and the powers that be (the ones that should be walking to the gallows for treason) seen the USD/SP link. So in the absence of reasons for the Dow being here they might break any and all EW patterns (which is what I think they have done at crucial junctures) and break the dollar. It won't surprise anyone as it is being talked about routinely as the cost of our deficits. It is what may give them higher stock prices, a greater chance at domestic consumption and exports – thereby fighting unemployment – and it also secures them a place in the next edition of “Manias, Panics, and Crashes.” That's all short term as it also is the beginning of trade wars.

    A cursory study of the reasons behind England's loss of hedgemonic power shows us on the same path. This can all be summed up in one word – SOROS. Obama was his wet dream to destroy a nation he despises. Goofbyee standard of living. But then aagain, “Fearless Leader” did tell us all that we can't use the energy we use and eat three squares a day.

    I'd love to see a “man on the street” interview in lower Manhattan where the host says “Obama” and the first word that pops into their mind is stated. My bet is “crap” is the most popular followed by “incompetent.”

    Steve

  • springheel_jack

    Everyone in the 1930s engaged in competitive devaluation, including the US under Obama's hero Roosevelt.

    The consequences of losing reserve currency status are very grim, as the UK found, but politicians are nothing if not shortsighted then and now.

  • Trader_Steve

    Plus I’m sure that you see that 3 is the shortest wave.

    This is about the 5th chart comparison I’ve seen off why we have to go down. The previous 4 have been costly. That said, I would like this one to work as I’m sick of this crap.

    Steve

  • Trader_Steve

    Plus I’m sure that you see that 3 is the shortest wave.

    This is about the 5th chart comparison I’ve seen off why we have to go down. The previous 4 have been costly. That said, I would like this one to work as I’m sick of this crap.

    Steve

  • Trader_Steve

    Plus I’m sure that you see that 3 is the shortest wave.

    This is about the 5th chart comparison I’ve seen off why we have to go down. The previous 4 have been costly. That said, I would like this one to work as I’m sick of this crap.

    Steve

  • Bear Claw

    Barbqueing bull this weekend. Cooked medium. Ya know, just to get in the spirit of things.

  • dynamo

    Remember Geitner's apparently incredibly dumb non-existent plan for the financial system? How markets tanked right after and didn't stop?

    Gov doesn't care about your 401K, at least not now since it's not an election year – I think Geitner's dumb speech with no plan for the financial system and Obama touting him the night before gave the Fed's traders and certain big banks a significant trading edge!

    They could easily do something similar soon, now that they have driven the market up on low volume and many are back in the market.

    Fund managers were already hoping for a good entry point before Geitner's speech, but didn't get it then, and I don't believe they'll get a good year end either.

    Banks and the Fed have done really well in collusion with the gov trading the tape down in a panic, and now up on low volume, in order to restore share prices (look at JPM and GS!) and I expect them to make a fortune driving it down by shouting 'fire' once again when it is least expected once everyone is in the building.

    At the high of this year and at the low of next year, they'll do the same thing all over again and fortunes will be made but those in control and fortunes will sadly be lost by the everyday 401K.

    Historically though, government intervention never works over the long-term so to the lows we go whenever that may be. I plan to be on board when it happens and hope they drive it way up because the fall will be all the harder.

    Then hopefully, after a few honest people like us have made some money too (made back some of the tax payer dollars they have taken from us and our kids), these crooks will be held accountable. I'd get more pleasure from that from any profits I make along the way!

  • Trader_Steve

    CNBC is saying it so if it is a down month they can still say “this is to be expected people…don't worry”, nothing more.

    Anyone see the movie, “V for Vendetta”? Wouldn't it be nice for CNBC to be the newsroom….LOL

    Steve

  • BigIslandLife

    I totally agree with the Squidman, so many great traders here to learn from and a great owner like Mole where else could you find such a education, I hope Fujisan keeps posting here some and can understand the constraints and time her efforts have taken. I am still amazed how so many can post interday and still enter trades. I need to learn how to multitask I guess, after I trade better.

  • Trader_Steve

    I agree with your points on the “1200″ crowd. Having gotten to 1/3rd of a masters in economics before deciding I would rather spend time with my kids when they were small, I find it can get in the way. But I'll use some elementary logic here that requires no economic training. It does require some common sense though.

    If one thinks that the S&P can go to 1200 and remain there one has to believe these points:

    1- that 1450 S&P was never overvalued and the cutting of its value by 50% was a mistake of biblical proportions
    2- that there is no credit issue in America any longer (and there most certainly is)
    3- that the Fed's balance sheet is worth every nickel sitting on it
    4- that the wave of commerical real estate defaults that are coming on line, and have been slowed by our tax dollars, will have no effect OR that the Fed will purchase them also at full face value
    5- that the number of increasing prime mortgage defaults will be irrelevant to consumer spending
    6- that our increasingly European styled government – the ones that have lived with 8-12% unemployment – will still keep the consumer spending as it must to drive the economy
    8- that P/E ratio snow mean nothing
    9- that John Templeton was wrong when he said that the four words – “It's Different This Time” – do not signal a market top
    10- that pigs can fly

    I'm open to the addition of two more to make it an even dozen or three for a “Baker's Dozen.” I can come up with 10 more but the above should suffice. What can make all of the above irrelevant? True Weimar styled hyper-inflation.

    Having finished Galbraith's “The Great Crash: 1929″ we not only did not learn anything from history, but rather we decided to repeat it. I had a tremendous Jan-March trading period. If I had read that book in February I might have realized that with the most corrrupt administration in our history, with more Czars than the Romanoff's, would create another bubble. How solid is this market? If Israel were to hit Iran – and at some point they will have to as this is not someeone just crying wolf for attention in Iran – they probably wouldn't open the markets for days due to the imbalance of sell orders.

    Steve

    P.S. I came across this Jim MacKay coverage of the 1972 Olympic massacre at Munich. I believe Obama is P3. But perhaps it will take an external event….and one that has been going on for many years.

    http://www.youtube.com/watch?v=4nOnRbTlWs0

  • fa_q

    I added a 1/4 short ES at 1021 so I'm in for 1/2 at 1018. I personally don't buy that move in Europe one bit. Incredibly light volume. I think most of that comes off. If not, I'll build into the ramp. NQ did correlate back to ES last night after being WAY overweighted early.

    If Tuesday is green I will probably have a full short position for Wed/Thursday. I believe we're still correcting off the move last week.

  • VirginiaJim

    Fujisan, great post, many great ideas. Two comments about the H&S comments.

    First, the inverted head and shoulders, so named the Head and Shoulders Top by the fathers of TA and first identifiers of the IH&S, Edwards and Magee, REQUIRED a confirming volume pattern. That volume pattern REQUIRES noticably increasing volume to the right of the head. In contrast you will find a NOTICABLY DECREASING volume pattern in SPX and DJIA.

    http://www.screencast.com/users/Virginia_Jim/fo

    I’ve sectioned the H&S into defined phases to evaluate volume pattern. Each phase agrees with E&M description of the volume pattern that should be present except for the right side of the head.

    Pg 81 “The essential difference between Top and Bottom patterns, you can see, lies in their volume charts. Activity in H&S Bottom Formation begins usually to show uptrend characteristics at the start of the head and **always** to a detectable degree on the rally from the head.”

    You’ll see on the chart, volume DECREASED notably after the head (see 4). Oops. That’s a big oops. That’s diametrically opposite to what E&M said “always” occurs in a successful pattern. Here’s some more support in E&M.

    Pg 81 “Wall Street has an old say which expresses it: ‘It takes buying to put stocks up, but they can fall of their own weight.’ Thus, WE TRUST, and regard as conclusive any price break (by a decisive margin) down through the neckline of a H&S Top even though it occurs on light turnover, but **WE DO NOT TRUST a breakout from a H&S Bottom unless it is definitely attended by high volume.**”

    Now, an IH&S by CLASSIC DEFINITION simply does not exist. You can follow Dr. McHugh's I'm smarter than E&M attitude and he might be. I don't think so. I think he's either arrogant or ignorant, but that's just an opinion of a non Doctor. But the point I want to make is that the absence of an IH&S does not mean the market won't go up. ABSENCE OF EVIDENCE IS NOT EVIDENCE OF ANYTHING. The market might go to the implied measurement objective but it won't be by prediction of an invalid IH&S by classic definition.

    Second, the “failed” July H&S Top. A matter of semantics. E&M require as the EXPLICIT 4th step of H&S Top creation the “SIGNIFICANT” penetration of the neck line. Significant was 3% for E&M while I think it was 2% for Jesse Livermore (actually, I think he varied his 'comfort level' some). That 4th step WAS NOT manifest in the July H&S Top and, hence, aggressive bears were scalded when it 'failed.' In my book, that wasn't a failure but a failure to understand the rules that make H&S formations high probability patterns. The H&S pattern simply never completed and hence there should have not been any expectation of the bears much anticipated measurement objective.

    Enjoy your blog and appreciate the posts you provide from time to time at SOH.

    Jim

  • springheel_jack

    Very light volume indeed fa_q. We'll see whether it really means anything tomorrow.

    I'm 1/2 short from 1015.

  • http://zstock7.com/ zstock

    SWN 200 day is 34.8–I doubt it goes below it’s 200 day, period.
    EPS trend is too strong to test under its 200 day, imo IF SWN does go below its 200 day, I doubt it will be more than 3 or 4%, and then look at all that potential upside!

  • rhae

    what a short squeeze feels like (Friday) giant water slide, being on the right side
    might have to schol, ( sk-roll) down a little.
    http://screencast.com/t/QpkxdWKcTrz

  • ultrabear

    Very sorry to hear you are leaving Fujisan – even though I am a noob here, it's plain to see you are a highly intelligent person and your input is always salient. I look forward to going through your past posts. Take care.

    So let me tell you what I came here to say before I saw the price action since Friday's close first. I was still pondering the price action over the weekend and went back over my labelling to see if there was any way that the move up Thursday and Friday could be considered impulsive.

    I'm pretty certain that it's not. It is, in fact, a beautiful example of a completed corrective WXYXZ wave (see chart on mole's previous post) – textbook, you might say – so what are the implications?

    Well, firstly, the next move should be down. The only doubt in my mind is whether wave 2 has completed or whether the move up so far constitutes just wave A of 2. In the former case, the implications are much lower prices as wave 3 kicks in and in the latter a small mover move down (respecting the low) and then a move higher.

    In both scenarios, we don't make new highs.

    I don't see the tape drifting upwards today making any difference to that analysis – in fact, it makes me lean more towards the straight down scenario.

    Regardless of what manipulation you think is going on, I would say again to look at the move up so far – in so far as it's a perfect example of the species, it shows that even when folks are trying to be manipulative, they just can't help but move in the same old behaviour patterns. I don't believe that you could manipulate the shape of the tape *that* perfectly if you tried.

    Now that, my American friends, is the very definition of irony.

    Just my two pence.

  • http://trading-to-win.com/ DavidDT

    yet another post with great attention to details (not the first one as I recall) – voice of reason in this insane make belief world.

  • VirginiaJim

    Thanks. Maybe the 'masters' aren't always right (and they never represented they would be right) but I feel comfortable with what I perceive as their greater diligence and devotion to narrowing down the probable outcomes with well defined circumstances. So, I try to pay close attention to what they felt were important to see if the herd is forgetting a key element. All this has yet to play out but things look very dire for the market to me. What I did not mention was the perfectly formed and completely volume confirmed ascending wedge from March 9, 2009 in every index. Combine that with the completion of the EW bear market rally WXY from March 9, 2009 AND historic bullishness (89% bulls per trade-futures.com versus 88% in October 2007)…. That is disaster waiting to happen.

    Jim

  • springheel_jack

    Great post as always from Jim.

    My only minor point would be that if you wait for textbook confirmation of a pattern as Jim suggests, it has often all but played out by then.

  • http://trading-to-win.com/ DavidDT

    it is not about looking for “text book examples” – I think it is about bettering the odds by narrowing possible number of trades out there to the very few where risk far below that of reward.

  • molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨
    ¨°º¤ø„¸ N E W „ø¤º°¨
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • springheel_jack

    I know. Waiting for the best trades. I wouldn't argue with that at all.

  • charles_smith

    Aw, KUSO !! You leaving this site is a huge loss–please start a blog so we can continue benefitting from your TA–
    charles smith
    http://www.oftwominds.com

  • charles_smith

    Aw, KUSO !! You leaving this site is a huge loss–please start a blog so we can continue benefitting from your TA–
    charles smith
    http://www.oftwominds.com




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