Adapt or Perish

As I mentioned today I’m not going to post any market forecasts for the remainder of the week for the following reasons:

• I’m completely worn out and so is Berk. Six months of trading a hyper volatile market that’s also being manipulated almost on a daily basis have been taking their emotional toll. I need a few days where I climb back into my inner shell and reconnect with my evil self. It seems that most of us have mentally adjusted to this crazy market and this has produced a constant uneasiness which I am capable of dealing with for reasonable periods of time. However, I also know when the moment for a mental refill has arrived – and that time has come.
• The market has reached record levels of volatility at this point and most indicators I usually rely on are  being ignored by irrational exuberance on the parts of the perma-bulls. You can probably chalk some of that up to a low volume holiday market, which today was getting banged harder than a $20 bunk bunny.  It’s not that I am lost in my wave pattern or the general market outlook – we are most likely already in intermediate wave (4) to the upside. But after three days of extremely overbought conditions today’s tape shows me that I might have better chances taking a flight out to Vegas and trying my luck over at the Sands (and the girls are prettier).
• Let’s face it – the option market completely sucks right now and thus Berk and I have decided to focus on a new futures trading system we are developing. Have been paper trading it so far with very favorable result, even in this stinking tape. The coming weeks are going to be pretty tough for option traders as the VIX is still sky high and call option premiums will be crushed by diminishing vega.
  On top of this the market makers are completely impossible right now. I grabbed some deep ITM SPY puts today and watched the option spread remain unchanged despite the SPX dropping by 5 points. Tried the same with DIA puts a few minutes later with almost identical results – made a measly $5 despite a noticable move in my favor. I’m not a genius but know when I’m being gipped. Thus, it’s time to consider a renewed approach to trading this market – it’s either that or wait things out until the end of January when we are nearing the top of intermediate (4).
• Based on the previous point I am now starting to believe that the usual EWT reports we are posting are useful, but don’t seem to be helping most members execute successful trades. Let me be clear on that: We will continue posting EWT reports, but I don’t see why mechanically posting reports is going to help anyone if the market is in a transitory or exceptional state. My motto has always been less is more, and this is all we need to know tonight:
  • We are most likely in wave (4) to the upside – which means the market is going to remain bullish for at least two months now.
  • If, despite all evidence to the contrary, we are actually still in 5 of (3) then we are in some ugly ending diagonal. Problem is that we would not have sufficient evidence to justify dipping into defensible put or short positions until the best time to leverage the ensuing down wave has passed. After all, it could just be a downside correction of minor 1 of (4). I don’t want to trade tape that can put me into a short squeeze like the one we found ourselves in the past two days.
  • It’s a holiday week and volume is fleeting which in turn almost guarantees monkey business.
  • What seems to work well in the past two weeks is to simply forget the wave pattern (for right now), and place trades according to 2sweeties’ retracement levels. I am usually not a short term trader, but this is not the time to load up on large amounts of puts or calls, so what’s left is to leverage the daily moves and there are plenty of those.
  • What also seems to be working is simple futures day trading according to pivots and your favorite momentum indicators. I for one do very well with my stochastics – Berk loves those MACDs and MAs.
  • The definition of insanity is to keep repeating the same thing over and over again and to expect different results — Albert Einstein.
• Once we have progressed sufficiently into wave (4) we will continue to explore longer term trades that exploit the unfolding Elliott Wave pattern, but at minimum on a minor degree level. Which means we will place trades with the expectation of holding them for at least 2 weeks (unless we get stopped out), thus cancelling out the daily noise (think weekly candles). Until we get to that point we will post shorter but to the point market forecasts. I will keep posting those retracement level charts in the morning and will chime in when I see something of interest. You all know I can’t help myself. But expect our reports to be rather brief and to the point in the coming weeks, especially as the year comes to a close. I will probably give you guys an extended weekend forecast, and then post one or two charts during the week.

Hope all the above makes sense to you. As a matter of fact, I would very much appreciate your input in all this – what your own thought process is right now and how you are faring in this market.

Finally, a big up to all you stainless steel rats for posting close to 260 comments on an intra-day update today. That’s excellent for a holiday week and I’m enthused by the sheer determination and hard work I’m seeing here. Now, if could just funnel all that energy into one of my evil schemes…

UPDATE: Someone asked a question about the long term nature of this bear market and here’s the big picture with some comments:

Bear in mind that the a and b cycle waves would be below the 2000 top if you factor in inflation or if you measure the Dow in ounces of Gold.

UPDATE 2: I was not kidding about the record volatility – as a matter of fact it’s unprecedented. Take a load of this:

Cheers! 😉