Smooth Cruisin’

Alright, since I’ve done ‘only’ five posts today, let me summarize today’s development for all you leeches. Today’s tape was extremely challenging but turned out to be equally productive in the end:

What’s unfolding right now is an almost perfect Intermediate degree a-b-c consolidation, which was desperately needed after almost two months of continuous upside momentum. But every rally must find its end at some point – and for this particular Intermediate wave the line in the sand was near 881 as I advertised for at least a week ahead of time (in case someone was paying attention). The peak of Intermediate (A) of Primary wave {2} turned out to be 875.63 – less than six handles away from my expected target.

Since then we already rode Minor wave A of Intermediate (B) down to 825 on Monday – I cashed out my SPY puts about 2/3 down for a juicy profit. The last two days presented us with Minor wave B which today ended near the 78.6% fib line and a few handles away from a diagonal resistance line which it barely touched depending on how you draw it. I had the mental fortitude to hang on to my short positions and even managed to scale into a few more SPY puts after around 850. The ensuing drop in the last hour has paid off handsomely already and whipped my account back into the plus for the day by a nice margin.

But from the looks of it this is only the beginning of a ride all the way down to 796, which is our target zone. How did I pull this number out of my hat (or out of something else perhaps)?

• First that would be the 38.2% fib line of Intermediate (A) of {2}.
• Second Minor A of Intermediate (B) already touches the 23.6% fib line and the minimum requirement for a C wave is that it drops below its B wave – thus this is the next logical target.
• Last but not least 796 also so happens to be almost exactly the 161.8 x the length of Minor wave A of (B) of {2} – down to about a few pennies. They are basically overlapping exactly which makes this a very strong attractor level.

Of course we need to keep an eye on the 805 to 815 level – there are various diagonal support lines in that region plus C would equal the length of A around the 805 mark. So, this might be a good spot to start scaling out of your short positions if/once we get there. At minimum expect some turbulence once we descend through that area.

If we rally above today’s highs the jig is up of course and something completely different is going on. Remember, surprises usually happen in the direction of the main trend, which we shan’t forget remains to the upside at this point.

Gold continues to drive everyone crazy with two weeks of whipsaw as of today. It’s not helping its cause however as the upper diagonal is rapidly approaching and should be the catalyst for further downside. We might touch the 900 line before we drop further but I would only welcome it as another opportunity to load up on more GLD puts. Also, all that sideways tape has its cost as the downside target keeps dropping as well since I’m basing it on the lower diagonal. Projecting that forward the new target for this Intermediate wave has now dropped towards the 820 level.

That’s pretty much all we need to know for tonight – the mission is fairly clear and we are well positioned to exploit the tape ahead. Not much else to say but good night.

Cheers,

Mole