Bullish Fractal Resolved

In my weekend update I presented a bullish fractal which strongly suggested that at least a small reversal was at hand. And the Monday script didn’t disappoint by following the playbook as we again sub-divided into another second wave.

Bear Market Rally XXXIV – The Spawning Of The Dip Buyers (the summer blockbuster of 2010).

The blue arrow points at that little rascal highlighted in green (like its other predecessors). And may I point out that the shape of the developing fractal was almost textbook on Friday.

Wave count update: We are now looking at more upside – the only question that remains is how much we’ll get. I think 1105 would be rather gentle – odds are the bulls are going to get one last scare out of the teddy bears before the long term trend is taking over again. Thus I’m waiting for 1120 before adding more short positions. It would also be nice to see signs of an impending roll over on the same short term indicators which suggested a rip was coming.

The Dollar (expressed by the DXY) is dropping nicely – just as anticipated. Thus far everything seems to fall into place just nicely. The best thing for the bears here is a quick scary counter rip which absorbs some of the overbought conditions of last Friday. This would nicely position us for a big move lower.

Caveat: The bonds have me worried – you all have seen the recent plunges in the TYX and TNX. This may point toward buying exhaustion in the underlying and although equities seem to have faded these massive moves altogether I’m a bit nervous about it in the context of an anticipated plunge to the downside. So, I suggest to give this thing the time it needs – unless we see clear signs on our medium/short term indicators I would propose to not become too overzealous – maybe we’ll see the beginning of a triangle here – who knows. Also – it should be clear to you all that we should not breach last week’s highs – if we do then it will have significant implications on the current wave count and I would suggest to immediately hedge all your long term short positions.

Anyway, I will keep you all posted – as soon as I see a disturbance in the force (i.e. signs of an impending plunge) I will post all evidence here.

And to answer wrc1k‘s question from the prior thread:

I think this should be obvious to any stainless steel rat: The most appropriate trade here is a simple horizontal spread. Don’t worry about entry cost too much – just make sure you’re properly leveraged with long term positions and that vega is moving in your favor.

Cheers,

Mole