Market continues to play out a wave 2 bounce...the question is which one? So far it looks like this is the wave 2 of the 3rd wave down I talk about below with wave 1 of 3 starting late June at $1131. The new low below $1041 in early July solidified the count and helped me get comfortable that the market is impulsing downward. I maintain my TZA holdings at roughly 90%. However, there is a chance that this early July low is actually where the Wave 1 (marked in blue) should be located. This, is pretty much just semantics at this point. What it means is that the market could make a move above the June $1131 high and not violate any wave rules. Once that move finishes, though, then it is down hard flying past the $1011 low. No matter what, unless something is completely wrong with my analysis, the market won't breach its April $1220 high and patience may be needed in the meantime.
If the 1 needs to be moved out to the $1011 low, basically it is because the market is just buying more time before it falls in the 3rd wave. However, the count I have labeled is still valid until $1131 is taken out.
Either way, if you are okay with taking a little pain in the short term, now is a fine spot to start shorting. Alternatively, you can wait until closer to $1131 but a break below yesterday's low likely means you should jump on that train!
After the relentless sell off from last Monday's gap top, it is getting safer to say that the Wave 2 bounce that I blogged about 2 weeks ago has completed. The move only lasted 2 weeks from the beginning of June to the 21st compared to the almost month long move in 2007's comparable position.
That would mean we are currently completing our smaller wave one of the larger wave 3 as I have labeled on the attached chart. The black arrow points to roughly the comparable 2007 position. Notice the selloff that occurred a week after that black arrow bottom.
When this current wave from the 21st bottoms we will once again get a wave 2 bounce (albeit at a smaller degree). This will be a final spot to get out of longs as the following move down will be at least 80 points down, at a minimum. These levels also should be levels we will not see again for a long time assuming the counts are correct (and they are playing out more and more as expected which gives more and more confidence that the counts are correct).
Hold on to your hats as things should get uglier from here. You can see that already the moves down in 2010 are larger than those that occurred at the top of 2007, although they are of the same "degree" and "size" in the wave count. This supports the theory that a new low below 666 will occur as this count plays out.
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