A few counts…
A few counts…
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]](https://evilspeculator.com/wp-content/uploads/2008/10/oct19ndxdrop.png "oct19ndxdrop")
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](https://evilspeculator.com/wp-content/uploads/2008/10/oct19ndxflat.png "oct19ndxflat")
$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
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
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!
