I hate to do it but I have to. The charts are telling me to. This afternoon's action was crazy! Not only did we pop like 3% in the last hour, that pop also carried us back INTO THE TRIANGLE!!! THIS MARKET IS DRIVING ME MAD! Why can't it just fall like it's supposed to!
Anyways, we are back in the triangle, which means our breakdown is not confirmed as I mentioned needed to happen this morning, so...we are back similar to where we were last week. Except now it looks like our lower trend line needs to be repositioned as I show in the chart below. This also means the highest probability is for a decent move north of 5-10% before we finally start the next move down. I mentioned this possibility in my update last week. Things haven't changed, though, and new lows should come, but it seems they have been delayed at least a few days.
This is what triangles are supposed to do. They are supposed to drive both the bulls and bears nuts to the point of exhaustion before a breakout occurs. That's why the resulting move is so powerful, almost always in the direction of the prevailing trend, because everyone then piles in after breakout with all the pent up energy.
Looking at the chart, you will see a few things...first, the dotted trendline is where the old triangle support was. You can also see by that big black bar, just after the gray vertical, today's huge afternoon move back into the original triangle which is now negated. The move back up is not confirmed yet, but the move down has been halted for now at least. This is also supported by the VIX charted below that brokedown as I have notated on the chart. VIX will have to start rising before the downtrend can be renewed. The moving average indicator also bounced off of its trendline, another reason to think this bounce could last a few days.
I will be adding long positions to hedge my short positions for the next week or two. I am doing this primarily because I have options expiring in a week that a move up would obliterate. You most likely are in a different situation, though, and probably don't need to hedge this short move up. However, if you made some decent money on the move down this week and are still in the green, then you may want to take profits with the expectation to get back in at a higher price. To each his own. As I said, the upside on this is pretty limited at this point with a max at less than 10% right now, but this move will try to suck every bull in it can as it should be the very last one there is before this next leg down. There are just very few wave counts left that support anything else. Trading is all about risk/reward and right now the risk is to the upside, albeit for a limited amount.
Unless today was some kind of weird govt. intervention and/or short cover rally, I don't expect anything major to change and expect us to continue north for a few days with the expectation of sending an update out mid next week.
Sorry for all the back and forth and flip flop, but this is a triangle and it will jerk the heck out of us until it decides which way it wants to move (which eventually will be down). Im trying to stay ahead of it and want you all to know my thoughts even if it is a little frustrating. Believe me. I know!
Good Luck
Chad
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