This week has a wonderful risk / reward set up for us.
As readers of this blog know, I am and have been waiting for a top for awhile. There is a possibility that occurred on Thursday.
But, I am not trying to pick a top. Right now I am proposing a great risk /reward setup that has occurred with that top.
Looking at the chart below it looks like the market has moved down in 5 waves. If this is true, then we should expect at a minimum another five. The great news is that we will know this is not a five wave move down with a new high just a few points above.
So, I really like this downside profile with a tight stop loss above $1214. It's that simple. Buy any of the short ETFs and keep a close eye on the $1214 level of the S&P. If the market makes a new high, close the position for a small loss, but if I am correct the market should fall to at least $1180 which is a $28 to $6 Risk / reward profile. Not bad.
The potential exists as well that we posted a wave 2 high on Thursday, but let's not get ahead of ourselves yet and wait to see what the market cards reveal!
Good Luck.
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