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Thursday, August 18, 2011

more downside ahead in the major indices

Below is a daily chart of the SPY.

At this point I'm pretty comfortable saying we have four waves completed of minor degree.  In the context of minor wave 5 down, we are still in a third wave.  I expect minor wave 5 will not end until we take out the 8/9 lows.
I expect a very healthy bounce after 5 completes,  retracing well above this week's highs.  I'll be looking for a 61.8% retracement of the entire five wave move down.
By the end of the coming bounce, investors and analysts will be very bullish, and hopeful of a recovery.   The VIX should take a huge hit, and provide a good opportunity for getting into short positions for the next big leg down.
Conversely, when we take out the recent lows, option premiums will be very expensive.  It will be better to be a seller of premium, than a buyer.  I will consider selling vertical put spreads when I think the turn is happening.



Posted by Waverunner (FractalTrader) at 5:45 PM

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Notation


Wave DegreeMotiveCorrective
Grand Supercycle((I)) ((II)) ((III)) ((IV)) ((V))((a)) ((b)) ((c))
Supercycle(I) (II) (III) (IV) (V)(a) (b) (c)
CycleI II III IV Va b c
Primary((1)) ((2)) ((3)) ((4)) ((5))((A)) ((B)) ((C))
Intermediate(1) (2) (3) (4) (5)(A) (B) (C)
Minor1 2 3 4 5A B C
Minute((i)) ((ii)) ((iii)) ((iv)) ((v))((a)) ((b)) ((c))
Minuette(i) (ii) (iii) (iv) (v)(a) (b) (c)
Subminuettei ii iii iv va b c
Micro((1)) ((2)) ((3)) ((4)) ((5))((A)) ((B)) ((C))