Vapor Rally

This is getting a bit eerie – the tape continues to almost exactly follow the path I traced out for it two and a half weeks ago. Sometimes the tea leafs offered to us by black EWT magic pay off in a big way. Of course it didn’t hurt that I sacrificed a number of small helpless animals (i.e. local infestation of cockroaches) to the spirit of Ralph Elliott Ralph Nelson Elliott as part of my ritualistic Black Elliott Wave Cult ceremony. BTW, if you’re interested – memberships are starting at 1 1/2 goats per month.

Okay, let me rub your nose in my glory – yes, I’m that petty and intend to milk this while it lasts. Here is the chart I posted on November 30th….

… and here’s the updated chart. Well, let’s hope my lucky streak continues – frankly, whenever you think you’ve got the market figured out it has a tendency to turn against you. But so far so good.

If you read my weekend post you know that we’ve got two competing scenarios right now – my sideways pattern from hell and the triangle formation – both counted and drawn on the updated SPX chart. There’s a separation point around 920 about two weeks from now – assuming we continue on the general shared pattern. If we keep rallying at that point, therefore invalidating the triangle scenario, then the target range is between 1000 and 1040, as originally projected. Remember that EWT assumes a time target and a price target – both would be satisfied at that point. What also backs this up is the P&F chart you see above, which predicts a similar target after today’s double top breakout pattern. FYI – the formula for projecting this is pretty easy:

Column of x’s that triggered the buy signal (11 boxes) multiplied by 3 multiplied by box size (5 for the SPX). Which comes out to 11 x 3 x 5 = 165. Add that to the point where the column started (855) – and voila – you get to 1020. A little magic there… I’ve got more where that came from. BTW, the multiplier for bearish patterns is 2 – just FYI.

Nothing really has changed since my weekend update, so I’m going to keep things brief. If you take another look at the current SPX chart further above, you’ll note where I intend to load up on July/August puts. Some of you recall my little math experiment on how $4k worth of SPY puts around mid July would have been worth close to $75k on November 20th. And bear in mind – that was somewhere in the middle of intermediate wave (2) up – had you bought those puts around the peak four weeks later you’d be sitting on about $100k. The message is however that you don’t have to pick the exact top. All we care about is to get Mr. VIX from his yodeling post and into optionable territory. Then load up on those July/August or maybe even September/October puts – some SPY, DIA, IWM (I don’t like cubes – sorry) – and you should be good to go.

Yes, Silver put a fast one on us (and we got our noses rubbed into it immediately by some wanker) – based on today’s tape I expect more upside in both Gold and Silver before we drop to 650 (which we will). The good news is that Gold seems to be linked with Silver again – and that makes reading the pattern a lot easier and more reliable. If we hit 880 in the ZG futures (above) I’d be very tempted to load up on some puts. First up we’d be reaching equality on an obvious zigzag to the upside and if we rally from there something completely different is going on anyway. So, yes – this may backfire like that Silver trade yesterday, but that’s how it goes – it’s almost impossible to get perfectly positioned, especially when it comes to trading commodities (remember Berk’s treatment in existentialism from yesterday). You have to pick your poison, which translates into the most defensible positions. Usually Gold scares you a little once you entry – so make sure you don’t grab a position that makes you sweat if it pushes towards 900.

Many of you have seen my comments on the Zero-RL on my intra-day post today. If you have followed the live screen grab feed you probably have seen my continuous comments while things were pushing to the upside. I actually had coded half through the night and this morning I had a very crude version of Zero-RL running on my workstation. With that I was able to predict that 885 and 895 would be breached. I then projected that it would take a Zero signal of over over 2 to breach 885 and exactly that happened. Then I suggested that it would take a Zero signal of minimum 6 to break 911 and at the very end of the day it indeed breached that one when the Zero hit 6.5.

I’m still working on how to visualize the Zero-RL properly but have the feeling I’m on to something exciting. What this might do for you leeches, once it is done, is to give you a better idea (nothing is of course guaranteed) of when you want to take on positions when trading those daily retracement levels. As I said – I know what the strength of the tape is based on the Zero – and I plan to build a special Zero-RL and add it to the right side of the feed that will visually show if an RL breach is expected. I don’t expect this to be spot on every time but it’ll add another dimension to the retracement levels. I personally think that the combination of the Zero plus 2sweeties retracement levels will be bigger than the sum of its parts.

I’m very excited about 2009 – we’re going to make a killing, my dear rats – hope you’ll tag along for the ride. Berk and I are just getting started.

Cheers!