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Vapor Rally
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Vapor Rally

by The MoleDecember 16, 2008

This is getting a bit eerie – the tape continues to almost exactly follow the path I traced out for it two and a half weeks ago. Sometimes the tea leafs offered to us by black EWT magic pay off in a big way. Of course it didn’t hurt that I sacrificed a number of small helpless animals (i.e. local infestation of cockroaches) to the spirit of Ralph Elliott Ralph Nelson Elliott as part of my ritualistic Black Elliott Wave Cult ceremony. BTW, if you’re interested – memberships are starting at 1 1/2 goats per month.

Okay, let me rub your nose in my glory – yes, I’m that petty and intend to milk this while it lasts. Here is the chart I posted on November 30th….

… and here’s the updated chart. Well, let’s hope my lucky streak continues – frankly, whenever you think you’ve got the market figured out it has a tendency to turn against you. But so far so good.

If you read my weekend post you know that we’ve got two competing scenarios right now – my sideways pattern from hell and the triangle formation – both counted and drawn on the updated SPX chart. There’s a separation point around 920 about two weeks from now – assuming we continue on the general shared pattern. If we keep rallying at that point, therefore invalidating the triangle scenario, then the target range is between 1000 and 1040, as originally projected. Remember that EWT assumes a time target and a price target – both would be satisfied at that point. What also backs this up is the P&F chart you see above, which predicts a similar target after today’s double top breakout pattern. FYI – the formula for projecting this is pretty easy:

Column of x’s that triggered the buy signal (11 boxes) multiplied by 3 multiplied by box size (5 for the SPX). Which comes out to 11 x 3 x 5 = 165. Add that to the point where the column started (855) – and voila – you get to 1020. A little magic there… I’ve got more where that came from. BTW, the multiplier for bearish patterns is 2 – just FYI.

Nothing really has changed since my weekend update, so I’m going to keep things brief. If you take another look at the current SPX chart further above, you’ll note where I intend to load up on July/August puts. Some of you recall my little math experiment on how $4k worth of SPY puts around mid July would have been worth close to $75k on November 20th. And bear in mind – that was somewhere in the middle of intermediate wave (2) up – had you bought those puts around the peak four weeks later you’d be sitting on about $100k. The message is however that you don’t have to pick the exact top. All we care about is to get Mr. VIX from his yodeling post and into optionable territory. Then load up on those July/August or maybe even September/October puts – some SPY, DIA, IWM (I don’t like cubes – sorry) – and you should be good to go.

Yes, Silver put a fast one on us (and we got our noses rubbed into it immediately by some wanker) – based on today’s tape I expect more upside in both Gold and Silver before we drop to 650 (which we will). The good news is that Gold seems to be linked with Silver again – and that makes reading the pattern a lot easier and more reliable. If we hit 880 in the ZG futures (above) I’d be very tempted to load up on some puts. First up we’d be reaching equality on an obvious zigzag to the upside and if we rally from there something completely different is going on anyway. So, yes – this may backfire like that Silver trade yesterday, but that’s how it goes – it’s almost impossible to get perfectly positioned, especially when it comes to trading commodities (remember Berk’s treatment in existentialism from yesterday). You have to pick your poison, which translates into the most defensible positions. Usually Gold scares you a little once you entry – so make sure you don’t grab a position that makes you sweat if it pushes towards 900.

Many of you have seen my comments on the Zero-RL on my intra-day post today. If you have followed the live screen grab feed you probably have seen my continuous comments while things were pushing to the upside. I actually had coded half through the night and this morning I had a very crude version of Zero-RL running on my workstation. With that I was able to predict that 885 and 895 would be breached. I then projected that it would take a Zero signal of over over 2 to breach 885 and exactly that happened. Then I suggested that it would take a Zero signal of minimum 6 to break 911 and at the very end of the day it indeed breached that one when the Zero hit 6.5.

I’m still working on how to visualize the Zero-RL properly but have the feeling I’m on to something exciting. What this might do for you leeches, once it is done, is to give you a better idea (nothing is of course guaranteed) of when you want to take on positions when trading those daily retracement levels. As I said – I know what the strength of the tape is based on the Zero – and I plan to build a special Zero-RL and add it to the right side of the feed that will visually show if an RL breach is expected. I don’t expect this to be spot on every time but it’ll add another dimension to the retracement levels. I personally think that the combination of the Zero plus 2sweeties retracement levels will be bigger than the sum of its parts.

I’m very excited about 2009 – we’re going to make a killing, my dear rats – hope you’ll tag along for the ride. Berk and I are just getting started.

Cheers!


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • stopsarein

    Thanks man thats certainly one way to answer a question. One thing i saw today is that oil didnt partake in the festivities. I opened a small short in XOM ( looking at it CXV was probably the better play ). I see a head and shoulders across QM or a descending triangle.

  • de3600

    Mole i thought berk set that chart up anyway HATTIP GREAT JOB

  • hog

    I want to thank-you Mole, Berk for all that you do to help guide us leeches thru the trading traps out here in these rice paddies. Armed with the ZERO and 2-SWEETIES retracement levels all we need do is follow the bouncing ball.

  • de3600

    One thing I think is E IS THE WAY DOWN no way this market will handle next earnings

  • BigHouse(Aka Mr Vix)

    Mole can you please refer to Ralph Elliott as R.N Elliott or Ralph Nelson Elliott? I would like to keep on the same level as the encyclopedia lol

    http://en.wikipedia.org/wiki/Elliott_wave_princ

    Thanks for the updated chart.

  • molecool

    Done – happy now? 😉

  • http://evilspeculator.com molecool

    LMAO – you’re gonna get it!! 😉

  • molecool

    That's the plan – working hard to fuse the two. Maybe we can call it the Frankendicator – LOL. I think I'm actually going to use that :-))

  • Insect Overlord

    IMHO it's tough to tell if this is a true vapor rally since volume was very high after the fed announcement. So it's tough to tell if this will continue on into tomorrow or the rest of the week. But I still have my stops set extremely loose for two simple reasons: 1. The rate cut isn't going to help. Once the street realizes this (maybe they knew this all along?) and the reminders of our failing/flailing economy pop up, we'll drop; and 2. the fact that the Fed was even willing to “lower” the rate to its lowest in history demonstrates how fubar the whole thing is and how desperate they are. All my puts are in the red right now. I doubt it will take long before they're in the green.

  • BigHouse(Aka Mr Vix)

    I hope this traces out to a trangle. I like triangles in particular because one always knows where one is wrong. Which in many respects is far more important than knowing when one is right. Any push above the wave C high (whereever it ends up) negates the triangle pattern per Moles chart. Hope i made sence.

  • BigHouse(Aka Mr Vix)

    Zig Zag please post a chart on UYG on a bullish point of view per Moles Triangle pattern. Thanks.

    I thinking 7.50-8.00? That's where Wave c would end in spx. Just a guess.

  • BigHouse(Aka Mr Vix)

    +5 lol

  • de3600

    Is eric MIA again

  • balljet

    OK, what will happen when the dollar is abandoned. When the banks continue to shut down and more home owners default on their mortgage of outlandish valuations. This country with a lot of gun owners who will defend themselves against eviction by banks they don't trust. Anarchy and collapse. Is that the future, maybe i shouldn't ask… This could get very ugly..

  • BigHouse(Aka Mr Vix)

    Even though i am long UYG …In his defense he did say get out of XLF last Tuesday at arounf 13.60.By Friday morning it hit below 11.50.Not bad for a trade. I f you covered.Very soon i will be on Erik's camp shorting XLF or UYG . Not yet.

  • Insect Overlord

    Because I'm preparing to put a couple longs on the table should we rally into the end of the week and I don't want to abandon my puts yet, I found a couple interesting looking longs…

    PX – http://screencast.com/t/a1MQZqNw

    STT – http://screencast.com/t/NrQIv6bpP — check out how well this one bounces between the fibs within the last few months.

  • HungryNewt

    My sentiments as well. I also just wanted to share that all of the latest moves by the fed reminds me of a quote by Henry David Thoreau: “There are a thousand hacking at the branches of evil to one who is striking at the root…”

  • HungryNewt

    The latest move by the fed reminds me of a quote by Henry David Thoreau: “There are a thousand hacking at the branches of evil to one who is striking at the root…”

  • molecool

    Uhhhh – yes – that's pretty much it. I thought we covered that already…

  • balljet

    I am still getting used to it . :(

  • ZigZag

    If A=C the target should be around $7.80 on UYG. It could have trouble getting through 7.00 again…

    http://tinyurl.com/6sasvo

  • traderchrispy

    Mole – Thanks for your analysis. Refering to your options example above (and in the coming weeks), are you buying (going to buy) ATM, OTM, etc.? Also, why don't you like the Q's?

    I'm planning my strategery…thx.

  • de3600

    Mole if we get to e in 2 weeks and break south how bad does that screw up your load up the boat play

  • BigHouse(Aka Mr Vix)

    Nikkei neg now.

  • de3600

    ya i just saw that and futures taking a small dump

  • ProZachJ

    Still drooling over the Zero RL. Wish I could have seen you in action today.

    Figured I would leave my positions on the chart to night so people can see how trading the RL System feels like….cause believe me its a gut checker…I am pyramiding in at each RL based upon a money management system that works in theory but this is the first time I am trading it.
    Its set it and forget it…and It has worked so far…but I garantee you if I had tried to sit here and trade it I would have lost money….cause looking at the trade history…I loose alot….untill a BIG win comes along!

    Right now the Yen is just below my first RL to go long…I've lost about 21 bucks on this position and it will get stopped out if we reach the next RL

    http://screencast.com/t/FsyvsbLC

  • http://guidepostings.blogspot.com perspective

    Talk about bait and switch. The pundits on CNBC high five one another while the equity markets go up a few percent and the dollar goes down the same. Robbing Peter to pay Paul. When our currency stabilizes and stops trading like a stock I will buy this market hand over fist. Until then, it's just a pink pong ball going down the stairs.

    tradepostings.blogspot.com

  • ProZachJ

    I think the yen is about to light it up!

  • JWBlack

    Mole, Berk —

    I first discovered your blog, among others, to see if I could find companions who shared my secular bearish market bias. But, as I am not a permabear, or a permabull, i became especially interested in The Evil Spec once Mole brought out his ZI. It seemed to be the perfect way to catch the intermediate trends.

    Today (and yesterday and the day before that) when I stared at the ZI almost the entire market day, it mostly worked. I'm not sure you have to tweak it for RLs or to accomodate your belief that the XLE has reached their tops.

    What is deeper than recency bias? Prejudice? Today I got the feeling as though that Mole was trying to find ways to undermine his creation. Yes, the RLs sometimes get in the way of his ZI, but so what? A trend, once established, is stronger than any line in the sand.

  • de3600

    http://www.youtube.com/watch?v=SGkrNJ19DSU&feat… this was great Rick Santelli taking out the biggest asshole in america.

  • ProZachJ

    Seems like you could use the stregth of the ZI as a conditional indicator based on the RL% that could be a great concept! and programmable..

    OMG MARKET AI!!! -sorry just couldnt resist.

  • DMS425

    At these levels the markets are not worried about next quarter's earnings. Investors want more clarity about 2010. As the “hope” is for a Q4 2009 into a 2010 recovery. If we are correct and the economy does not show signs of improvement by Spring, good by -ohh nine-!

    Berk is that what you are looking for? That chart look “vearry nnice”, Borat voice..

    I almost forgot watch out for the SRS, (80 looks like great support and it just got busted, I felt it) these POS REITs may be in for a real rally as people drive them up from extreme lows. First the financials, then insurer, and now the dumb ass REITs may be for their run.

  • molecool

    I think you're missing the point – I'm trying to leverage the Zero to measure probabilities for RL breaches. It'll all make sense to you soon – you can obviously trade the Zero on its own – look at the recent signals – they look good to me 😉

  • gagelle

    Thanks again molecool. This is starting to get exciting.

  • krazykev

    Mole & Berk we greatly appreciate your insight. You guys got some awesome skills and knowledge . Very glad to be on the winning side with you guys !!!

  • PatrickK

    It's alive, I tell you… I't's aliiiive! Frankendicator – LOL. 😉
    It was cool seeing the RL, Z combo develop just like you posted ahead of the move on the wordpad post today. This is crazy fun to watch develop. Again, thank you for the opportunity to watch, trade & learn.

  • HungryNewt

    :( With the USD losing so much value today today was another sad day on wallstreet… despite what all of the mouthbreathers thought.

  • stopsarein

    I think the dollar is completing its A and will soon be onto new heights.

  • http://www.blog.donnaklinenow.com Donna

    BPNYA and NYMO are sending very bearish signals. Note the divergence in the NYMO. Danger, danger.

    http://www.blog.donnaklinenow.com

  • http://guidepostings.blogspot.com perspective

    when currencies trade like stocks, you get serious dislocations. the next spell appears to be here. looks like we are just repeating from last years script. cue the music…

    tradepostings.blogspot.com

  • FerdtheMoonCat

    Mole & Berk, please permit a noob to ask a dumb question. First, I am trying to learn and understand trading. I very much appreciate (and try to learn from) all of the comments from all traders here, but also on Atilla's site, TK, Kirk, Futia, TLo, etc. Now: I believe you've designed the zi oscillator to indicate where the short term market is. But, if EW theory is sound (and I accept the proposition that there's a basis for behavioral market determinism), why does one need the zi since EW tells us where we're going ST, IT and LT? And if the predicate for the zi is a need to read what Ms Market is saying at the moment, then why should one care what EW forecasts? Please help this leech reconcile the two. Many thanks, Ferd

  • etechpartner

    Zero helps to trade shorter moves and works on being ever so slightly ahead of the market in real time. EW is a theoretical model that works on hindsight. At the end of every day a person using EW would try to reconcile how the days result fit with the model. Hence EW is useful in planning much longer term moves.

  • etechpartner

    Not sure that one day of market action is a trend.

  • Darkthirty

    I use EW to set trends and RLs, then use TA to catch the turns. You must follow the rules or EW is worthless

  • traderchrispy

    Mole – How are you coming up with the returns in your option example above? You're talking about a profit of nearly 20x the initial investment.

    I'm looking at June puts right now, and assuming SPY makes it to 100, then drops nearly 40% to 60 over the next 6 months, the best I can see is a 4, maybe 5x return.

    Still not bad of course, but I want to know if I'm missing something better. My example is just buying puts.

    Thanks.

  • MaxPainMan

    AAPL falling off the cliff

  • gagelle

    All kinds of rumors about Jobs being ill.

  • BigHouse(Aka Mr Vix)

    http://www.youtube.com/watch?v=aQ0uz_sHFT4

    Watch the first part of oscars clip.Its funny.

  • http://www.myspace.com/181419967 JZT_CHIL
  • de3600

    I miss something on fslr up 10 bucks in 20 min

  • MaxPainMan

    max pain @ $95 (and approaching $90)

  • Apple Al

    Entered short positions 9:50 AM – stops @ 926 S&P

  • geckoman

    For those longer term investors and more boring types Corporate bonds, Global bonds and now High Yields offer some of the easiest pickins in this market in terms of risk v return. Just something for the gray hair crowd. HYG is one that looks like it might rise from the dead.

  • Insect Overlord

    Wow…I sure can pick 'em. Bought a put on AEM yesterday when it was at $42.

  • Paleface

    TLT is in the sky

  • JWBlack

    Looks severely overbought, doesn't it?

  • Insect Overlord

    What does TLT follow?

  • Paleface

    Only 82.5 RSI and above 2nd st.dev channel. POT was 97 RSI at 4nd channel. Maybe too early to jump:)

  • Paleface

    “The investment seeks results that correspond generally to the price and yield performance of the long-term sector of the United States Treasury market as defined by the Lehman Brothers 20+ Year U.S. Treasury index. The fund generally invests at least 90% of assets in the bonds of the underlying index and at least 95% of assets in U.S. government. It may also invest up to 10% of assets in U.S. government bonds not included in the underlying index. The fund also may invest up to 5% of assets in repurchase agreements collateralized by U.S. government obligations and in cash and cash equivalents.”
    (Finviz.com)

    If you can understand it. I'm afraid I'm not.

  • Michael Ricelli

    What a whimp. Holding 10 Drys 10s. Sell half at open. Scaredy cat. Sell half over a buck up. Instead of a grand, up 450. Ok, I think it's time for me to spread my legs and check the ball sack. Whimpboy.

  • krazy4

    Folks: I am new to this site…Are you long or short right now…Is any body waiting for bounce to 950? I am short but want to see if I should get out and reshort at 950 or not…

  • T.B. Aurelius

    Berk..
    I give strongest probability for the market to trace back down to where it started…IF, that is big IF only she starts dropping rather fast…
    Do you see that possibility?

  • T.B. Aurelius

    It's called a “Bubble”.

  • T.B. Aurelius

    You are too smart….
    (Not sarcastic remark at all, this time….for real….)

  • geckoman

    What happens here? SPY sitting above/right on 50 DMA 0f 90.25 but looks like it wants to go lower. If the markets lose the 50 dma that would be a blow to bulls. I can make a case that buying pressure steps in at the end of the day to hold the 50 dma.

  • JWBlack

    Speaking of TLT, I sure wish 2SWT did his RL magic with 10 and 20-year Treasuries.

  • MaxPainMan

    FSLR…… shorting now

  • geckoman

    Closing out XLE puts for small loss. Don't feel I have an advantage either way here right now.

  • molecool

    My line in the sand is 51.45.

  • geckoman

    I have been looking for the OPEC news. DId they announce cuts? The only thing that matters is how big the cut is. If they did a whopper cut that's bullish for oil. If they announced there are more to come then that's bearish.

  • molecool

    CLEAN THEM CUPS!

  • Enfinity

    4.2mm bbl/day cut…crude popped and was promptly faded with conviction.

  • standard_and_poor

    Just got stopped out of qqqq calls for less green than expected, all part of the game I guess.

  • molecool

    CLEAN CUPS!

  • molecool

    I suggest you read our market forecasts – there was a very nice one last night. I also recommend the weekend forecast – I usually go all out…

  • molecool

    Dig deep buddy – they might have retreated to the inside. Stick your thumb into your mouth and blow – that'll pop 'em out.

  • molecool
  • MaxPainMan

    will short more at $150 – $155

  • C.C. Rider

    I MISS YOU. ZMAN

  • http://www.myspace.com/181419967 JZT_CHIL

    Miss your company, too, Z! ~\(^_^)//~

  • C.C. Rider

    e-mail me @ crosleyc@gmail.com for complete directions. :)

  • C.C. Rider

    e-mail me @ crosleyc@gmail.com for complete directions. :)