Sunday, April 26, 2009

Elliott Thumbnail

With the last blue "4" of our last EW thumbnail in mind (in the green area on the right side of the chart under the number 8000)...

We can have a closer look at the development of the latest leg...

The purple arrow is a near term target given the green ascending diagonal, and the beginning of the leg that brings us back to its origin (just beneath the 7500 line). This is a minimum development, in other words, the Dow may fall lower.

The options from 7,500 are to continue lower to resume the 5th wave down, or a possible zig zag one more time up into the 8100 range as a final completion in the 4th wave, then resume the 5th wave lower. This is my preferred count and it should take us back to 6,500 or lower.

Another interpretation is to call the leg starting at 6,500 the first leg of a higher order ABC correction that leads us into a bigger 3 wave of C down. Remember, October of 2007 is really the start of a large C wave down. There are basically two options here since the ascending diagonal has already signaled a return to the 7,500 range. After we return to the 7,500 range (or lower), we call that a B, then get a C wave up. If the C wave goes up but does not exceed 8,100 or so, then it really won't matter what you call it, either an extending 5th or a 3 of C lower. If the wave after 7,500 shoots significantly higher than 8,100 mark, then we should label it an ABC of higher order, and we know that a very severe 3 wave down will ultimately follow.

What does it all mean from a trading perspective?

Near term (monthish): 7,500 or lower
Medium term (months): Unclear
Long term (years): Disastrously lower

I will let my last Elliott Thumbnail speak for silver/gold, no changes there.


  1. FDR,

    Regarding your previous post on double / triple shorts and longs on options, your example consisted of an option on the DJIA that expires the upcoming month.

    Do you ever trade on options with a longer life span?? Like 3, 6, 9 months down the road?

    It is my understanding that these options charge a higher premium because of the time value". Is a "deep in the money" strategy recommended on those as well? Are they recommended at all?

    Thanks a lot for your insight.

  2. Hi JAM,

    I prefer to sell time value, rather than buy it, since the clock always ticks. Selling clock ticks is a lucrative business.

    When buying options, staying well into the money ensures there is very little time premium. Given a well into the money strike price, I lean toward buying the nearest expiration date to minimize premiums further. I can always roll the position later if I want to keep it open, again, with very little time premium.

  3. Thanks for the reply, FDR.

    I had heard about "rolling over" positions before, but I have the idea that it is a little bit complicated or that prices get to change substantially.

    It's just that I don't know how to structure those movements nor when it is the most appropriate time to roll over (the very last week, the very last Friday). I have never tried it.

    Therefore, I had favored ETFs in the past for its simplicity. Not a good idea after all. Currently, the biggest ETF fraud is SRS.

    I wish you could expand on this rolling over subject a little bit more in the future on an expanded post.


  4. Rolling a position to a later expiration is not complicated if you are well in the money, which is one reason to start there.

    If you minimize your options-related premiums, then all option-related strategies are also minimal.

    Most people lose the options game because they play it.

  5. If you do play it, that is, you buy a near the money option (instead of short it), generally, you want to act in fairly quickly. To take profits or losses in, say, the first 25% of your time purchased.

    The reason for that is that all time curves are the same, theoretical, parabolic curve downward. By taking action early along that curve, you can minimize time premium lost.

    No matter what your expiration, theoretically and generally, the first 25% or so of the time premium's falloff is flatter (more horizontal, less loss) then the last part of the curve.

  6. Thanks for the update FDR.Just a conjecture but is it not possible that Dow moves again down to the 7500 area and then consolidates for a medium term upmove(6-12 months) to somewhere near 10-11k before falling apart again?
    This conoslidation period may spell the deathknell for gold prices which may come crashing down if DOW moves back to 10k again.I would like to understand DOWs movements ahead from the USD index perpective.Do you see the USD index going towards new highs or all time highs in the coming months and years?

  7. I expect the USD to strengthen massively. Its peak in buying power will take a decade or two.

    Whether the USD will hit all time highs vs other major currencies which are also severely deflating is probably unknowable.

    Cash is king in all major currencies that ultimately survive.

  8. FDR wrote: "Cash is king in all major currencies that ultimately survive."

    I think this is an extremely important statement, and raises an equally important question: which currencies are likely to survive, and how do we go about determining that?

    I personally think the US dollar will survive if only because of inertia: it's difficult and painful to change one's working currency, and many people are still using the US dollar even now.

    The problem is that such things are ultimately controlled by those with real power (those who pull the strings of the U.S. government, for instance), and I have no idea what their plans are.

  9. "The problem is that such things are ultimately controlled by those with real power (those who pull the strings of the U.S. government, for instance), and I have no idea what their plans are."

    See it like a group of friends, in a normal back ground of the society. what they do? they help their friends and do not really care about people they don't know. Same applies to governments. they give back to those who helped them get there. Their plans ultimately tho is to steal as much money as they can from tax payers and shareholders, to redistribute it among bankers, money changers and some unclear dark evil forces (human beings tho) who run this planet.

  10. FDR it would be of great help if you could dissect and answer this :"which currencies are likely to survive, and how do we go about determining that?" Which of the following will/will not survive :british pound,Japenese Yen,Euro or the chinese Yuan.


  11. Don't forget Canadian with supposedly the strongest and least leveraged banks in the world right now if you can believe. Also megaloads of natural resources but we are their primary market so if we faulter they could hurt too. They seem to track our currency pretty well so I assume they pull money from the system about enough to hang in there with the USD. This is a great question about which currencies will survive but I agree it might be unknowable and there may be unforseens too that come to bare.


The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

Free Hit Counter