Fork In The Road

Well, folks – it all comes down to this. We are now at the brink of what I imagine will be an explosive move.

To quote Yogi Bera: If you come to a fork in the road – take it! 😉
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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If you bought options earlier last week you got brutalized today – not a pretty picture. And yes, I am speaking of options in general – no matter if you bought puts or calls. Of course if you bought puts please accept my condolences. That is why I told you guys that I did not want to be long or short. Yes, option vega is a very cruel mistress and unless you’re a skilled operator she’s likely to rip your face off and have you watch her eat it.

But another little detail on this chart is the MA of the 25BB at which volatility snapped back this morning. Yes, there is a reason I use this chart – it rarely fails me. Anyway we are now near the proverbial Maginot line at which the medium term trend (i.e. the next few weeks) will be determined. In order to explain this let’s go back to the future – to the days when I was focused a bit more on Elliott Wave Theory (EWT).

As most of you know – I don’t use Elliott waves to predict tops and bottoms. But in the past I was quite good at employing its basic rules to assess the odds of trend continuations or signs of reversals. The trick is to not just count waves and to always be open to both sides of the tape – unlike some other Elliotticians who I will not mention.

Anyway, one of the most basic rules in EWT is that a fourth wave cannot exceed the bottom of a first wave (and it’s the top of a first wave in a bull market). What makes EWT a bit of a mental masturbation at times is that there are wave sub divisions and as such we could be in wave ii of 3 at this point, which means that we may be close to dropping into iii of 3 – and that is usually the meat of a down wave, especially if it happens in a bear market.

So given this let’s look at the chart above. We already breached the bottom of the first wave down – check. Now, this means that we just have completed a zigzag to the downside and that we’re about to ramp higher. The EWT bears will look at this chart and see the complete opposite – which is why I call this situation ‘one-two hell’. Market makers by the way love these setups.

Personally I would not want to take sides either way. But that doesn’t mean I would not want to take a position! 😉

What I would wait for is tomorrow’s daily candle – let’s say we get an inside candle tomorrow after a little drop, as favored by our resident Ozzi convict. Scott’s candle setups would be a great way to get positioned on both sides with the appropriate stops. Because either way this resolves it’ll be explosive.

One more chart before I go – our current Net-Line Buy/Sell levels a la Chris Carolan. I just want you to be aware that a close above 1300 would be bullish for two reasons: One it’s a psychologically important number the longs want back and two it’s our current net-line buy level. Conveniently the net-line sell is at the recent 1241.25 low. Trade accordingly.

A final word of caution: If you trading options and wind up taking the long side you may consider using a combination of vertical spreads. This way depleting vega won’t take your calls to the cleaners.

Cheers,

Mole
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