The Day After

10:30am EDT: Yesterday was a very wild ride and it taught us bears another lesson in the arts of irrational exuberance and self deception. My apologies for not posting an updated wave count last night but I was busy as hell setting up my new quad-core Nehalem system which will be the workstation running all the NinjaTrader strategies. I even got Windows 7 64-bit installed and although I didn’t receive my RAM yet (only running 3GB)  it’s blazing fast.

As I hinted upon last night – we are now most likely close to completing a first Minor wave which should be followed by some kind of retracement. Please note the areas of support areas I have highlighted as possible targets for Minute {iv} of Minor 1 of Intermediate (A) – as of now it doesn’t appear that this Minor wave is yet complete.

The entire month of May bestowed us with yet another sideways consolidation, which again managed to obliterate the short positions of many hopeful bears. As you know I played it pretty small and still felt a sharp sting when my once profitable puts gave up most of the remainder of their premium during Friday’s last minute rocket launch.

What’s most interesting to note right now is however not the wave count but the increasing levels of frustration I sense among bears. February’s euphoria has slowly turned into deep frustration and I sense the smell of capitulation in the air. Daily investor sentiment figures measured by the DSI reached 86% yesterday and thus the good news for any remaining bears is that the we are now entering the final stages of wave Primary {2} of Cycle c. By the time we are painting the very final tick of this Primary consolidation wave investor sentiment will most likely have exceeded the 90 percentile mark, which would actually have pushed it above the 88% mark measured at the October 2007 peak. Of course it’s possible that we see a top before this happens and I will continue to monitor investor sentiment on various indicators carefully.

However, in the interim we must continue to treat cautiously. The current trend does not appear to be waning and at my estimation we have at least another month of Chinese water torture ahead of us – drip drip drip – I expect us to keep melting higher – all disastrous (and yet already obfuscated) economic news notwithstanding. The name of the game for us should be capital preservation so that we are ready to strike when the end of all this foolishness appears to be near.

Nevertheless – let’s not forget that we are able to trade a market of stocks and not just the stock market as a whole (e.g. per index options). There is always fun to be had playing both sides by staying delta neutral – which means to balance your puts and calls equally. So going forward for the next month or so: If you see an interesting short play, make sure you pair it with an equally potent long position. This way you won’t be affected by large scale swings in the averages. However, make sure that both positions’ delta balance each other out as much as possible – or at least that your entire portfolio is as delta neutral as possible.

11:05am EDT: The Dollar appears to be in the late stages of what looks like a flat (a 3-3-5 correction):

I have highlighted the next two possible targets and my money is on the 150% mark – we might even go as far as 165%, which would be around 76.5. So structure your commodity plays accordingly – this ride has come a long way.

I expect 16.25 to be a considerable line of resistance for Silver and will start scaling into some short positions once/when we get there. It is possible that this even coincides with this year’s low in the Dollar.

11:20am EDT: Oh, and before I forget it – Geronimo scalped twice this morning – successfully each time – 2 for 2 🙂

11:36am EDT: Your channel du jour:

A breach around 94.50 might bestow us with a bit of downside momentum – however the lower degree wave count is as ugly as a shaved cat right now – safest bet is probably to expect the channel to continue for a little while – also offers E-Z financing and stop loss protection. And if you call us now we throw in a free set of Ginsu knives.