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A few counts…
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A few counts…

A few counts…

by MoleOctober 19, 2008

There are two basic scenarios that are on the table right now, and I am using the $NDX to represent the options.  The first one is that a counter-trend rally is complete, and that we are heading immediately lower, as displayed by this chart.  In this option, there are two choices, we are falling in a smaller degree [v], or a larger degree [V].  If we are falling in the smaller degree, we would target around 1100, maybe a little below, and then most likely chop of a few weeks before the larger degree wave V of 3 decline.  If we are already complete with wave IV, then this decline is the last move down in our precious wave 3 decline.  If this is the case, then we should be targeting 900 to start, and possibly lower than that.

of w[V]”] $NDX drops in w[v] of w[V] The other set of counts revolves around a counter-trend rally not being complete.  If this is the case, there are two main count options at the moment, a flat, and a triangle.  A triangle should not have us pushing above Friday’s high, while a flat would be targeting the range between 1470 and 1525.  A flat would target similar ranges as if the immediate decline scenarios, however, a triangle offers a number of preliminary targets depending on how it would count.  Should it be the larger degree wave V decline, and we use [w1]=[w5] equality, we would target just under 700.  If we use the width of the triangle to get our projected target, we would get almost 950, regardless of whether is was wave v or V.  And if this would just be iv, and the following decline wave v of III, we would target about 850 with a [w1]=[w5] equality.

or w[IV] flat”] $NDX w[iv] or w[IV] flat
$NDX triangle

$NDX triangle

The reason that I favor the smaller wave v vs. the wave V is that we have yet to put in a divergence (in either MACD line or histogram) in all the indexes.  Normally, a wave [V] of a wave [3] would produce a single divergence, while a the final wave [5] would produce a double divergence at the low.  As you can see on the $INDU chart, the MACD and MOMO are not divergent to this point.  I still do not believe that the markets are putting in a lasting bottom at this point due to the weakening breadth.

$INDU non-divergence

$INDU non-divergence

The $VIX seems to be testing a resistance around 70.  The next two closest levels I could call horizontal support are 57, which I have been buying around, and 47, and 40 would be a close 3rd.  I don’t think we will see much of 40, and am highly doubting that 47 will even come into play, but I would not be surprised to see us bounce in the range of 70 – 57.  If you are trading options, you should keep a very keen eye on the $VIX right now, as lower levels offer great option prices, while selling when it is at all time highs makes it easier to profit.

Watch 57 - 70 for option players

Watch 57 - 70 for option players

That is it for this weekend.  I am going to spend the rest of my weekend revisiting my trading rules.  As I said, the market rules have changed, and it is about time that I make sure I am not using out-dated material myself.

Skål!

About The Author
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.