Thursday, April 9, 2009


(For those who think I've fudged the maximum Wave 4 peak a little, you are right, I have. But that is the nature of Elliotts, they scale up as they grow along the time axis, so with large moves and time frames, the limits can be exceeded slightly (maybe a percent or so) due to the next wave always growing a bit larger in scale than the previous.)

As we continue to oscillate at the upper limit of Wave 4, I still believe the most likely scenario is slowly sinking to a new low, or close, before bouncing mildly upward. The bottom line is this is a risky time for both long and short positions. As we are again at an upper bound, I am going to place a limited short bet on the Dow, with a very tight upper stop. In at 8030, stopped out at 8110, with a target of tabling profits as we descend through 7,500.

Following this down leg, I am leaning toward a limited upside, since almost everyone on the street seems to view this as a opportunity to leverage back what they have already lost. Perfect trap, it won't happen (can't happen - no money) for the vast majority. The price movement of any sustained upside will be crafted to optimize the number of dollars it can tempt back in, only to burn that too. In my view that likely means a great euphoric spike (see #20 !) or two, producing high premiums and volatility making leverage expensive, followed by a slower roll over to resume the crash.

Yes it is possible to move right into the spike upward, it would still count legitimately, but with another stunted 5th. I think that is less likely at this scale and degree, but it is the reason for a tight stop on the upside.

If you want to play this stupid casino game with zero underlying fundamentals and only stacked decks, be prepared for an open that jumps your stop in either direction. That is why everyone with a brain should be in cash and Treasuries earning a nice slow 50-100% annual yield as prices tumble and crash into a long term depression.


  1. gonna take ur advise on this one and risk a few hundo. hope it works out. r u doing it on futures?

  2. "The bottom line is this is a risk time for both long and short positions."

    Totally agree. I made a little money on my last SPX short, but Gold/Silver shorts have been much easier money.

  3. What about the ending triangles in the dow and S&P, that could bring the dow above the 8110 level, to as much as 8200-830.

  4. "What about the ending triangles in the dow and S&P, that could bring the dow above the 8110 level, to as much as 8200-830."

    Triangles can occur in corrective waves too, and they will thrust in the opposite direction of the entry in that case. So you have to be careful.

    Triangles are my absolute favorite high percentage play, but you MUST be certain they count as a wave 4, and that is best achieved during well established bull moves.

    Just my two cents.

  5. In high risk positions I buy fairly cheap leverage using well into the money puts. Time value isn't a significant expense or limitation if you dwell 20% or so, of the base symbol, in the money. As I get a move in my direction I'll use rallies against me to ratchet my position to follow the move.

    Normally I sell leverage to casino patrons by writing options to rake the house advantage, but this is purely a traders market, investors are gone.

    I do not use short-double short ETFs, they are such scams they really should trade Over the Counter. (Except to short them after a large move in the advertised direction - now that is a lucrative play)

    Cash is the proper play, these trading alerts are for dummies who enjoy playing the game, understand how to manage risk, and already have more than they think they need protected.

  6. Fdr,

    Why do you base your projections only on the dow30 instead of broader indexes like the s&p500?

  7. FDR,

    How rigged is this market? And, if it is rigged, how long can this continue? Indefinitely? It seems after a bank makes a ridiculous claim of one sort or another, the giddy bulls come out and "put some cash to work." Where is the skepticism?


  8. Well, it's rigged like any casino is rigged, the games heavily favor the house. Rotating indexes dangle impossible gains in front of patrons, silently replacing their dogs on Sunday afternoon.

    That doesn't mean you can't win - if and only if you are willing to go both long and short. And unlike most casinos, you can buy a house advantage - although that is a derivative side show that brings systemic risk all its own.

    The stock market in its most basic form is an exit strategy for private smart money that wants out. Anyone who expects to make long term money sifting through other people's garbage to discover effortless gains with a passive long disposition is bound to be disappointed, and they deserve to be.

  9. Fdr
    When you say that cash will have a annual yield of 50 to 100 %

    The obvious is asset prices.Homes, cars, art, Are there other prices i am missing?

  10. It takes a long time for deflation to trickle trough everything, but it will.

    Prices collapse essentially in order of underlying leverage, which is why real estate and bankers lead the fall. As I said in 2007, prices falling in a vacuum is actually a great thing, it is ultimately unemployment that shoves the dagger in.

  11. FDRAOA, keep it up. Many thanks. A crazy idea, per your note:

    "I do not use short-double short ETFs... (Except to short them after a large move in the advertised direction - now that is a lucrative play)"

    What if you were positioned long AND short... on BOTH bear and bull ETFs simultaneously? Completely moronic? Or genius??

    Like FAS/FAZ... 4 positions... long and short both simultaneously??!! Wouldn't you be guaranteed to make money on the time decay alone??? As well as rotating out and back in after huge moves???

  12. ok, nevermind. Completely moronic. Human error would make it a losing proposition.

  13. jgr025,

    It's not moronic at all, but your concept of straddling needs to be employed, both long and short with leverage, on a single index using options with risk limited to capital. Something like this:

  14. fdr,

    nice play on shorting the dow @ 8030....proves to be working out pretty well today. With GS reporting earnings tomorrow is your limit sell at 7500 still in effect?


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