October 5th update

I haven't posted in a few days, since there really haven't been good opportunities to discuss.  At some point I may widen my scope to other products, but for now I have my favorites, and I find being patient and waiting for good setups is the way to go.  Having said that, things are starting to look interesting again.



S&P 500

This 2 day rally is not over.  Why is that?  As bearish as the daily (top) chart looks, look at the 2H (lower) chart.   We have five waves up accompanied by a clear cross of the signal line over the base line.   We are in a bear market, so this is a bear market rally.  But even knowing that, what is not entirely clear to me is the degree of retracement that is ahead.  Going back to the top chart, if say the orthodox top of this decline occurred on 7/7, then this will be an intermediate wave (2) and likely be sharp, and retrace as much as 61.8% of that decline, targeting 125.03 on the SPY.  Alternatively, if the top actually occurred in early May, which was the technical high, then the five wave move down starting in July was only a third wave of minor degree.  In that case the retracement will likely be sideways, and a typical shallow 38.2% of the third wave, or only 118.42 on the SPY.

I've decided I would like to play this move higher, so I will try and sell a vertical put spread tomorrow.  That strategy will make money in either of the above scenarios.  Additionally, if we get anywhere near the 61.8% retracement, and definitely if we surpass it, I will know this is an intermediate degree wave (2).
The unlikely, but possible scenarios are:

1. That we are in a new bull market.  It's almost impossible to say that with a straight face, but just to entertain that for a moment, we would get a five wave move higher of minute degree, and eventually exceed the May highs.  The above strategy is still profitable. 
2. That my wave count at minuette degree is wrong all together and "the dip" I'm expecting tomorrow makes new weekly lows.  This is where I could get into trouble, and I will be placing my stop at the Tuesday low.

I'll be looking for a good entry tomorrow.  If the /ES retraces all the way to the base line on the 2H chart (lower) or around 1104, which I think very likely, I will look to put the trade on there.  Additionally, I will want the signal line to either remain above the base line, or cross back above it.  I tend to watch the futures, and play options on the ETFs, so something like selling an SPY 110/107 NOV11 PUT spread is what I'll be looking at.  I'll receive a credit for selling the spread, and higher prices, time decay, and lower volatility will all work in my favor.  The tricky part will be how long to stay in the trade and where to take profits.  If the next impulse wave higher ends up relating to the first wave at a ratio of 100% or less, then I will give the shallow retracement scenario the benefit of the doubt.

Oil

Oil has been stair stepping down in a very odd fashion going back to May.   The waves are all very close in time and amplitude, so I do not have high confidence in my wave counts at degrees below intermediate.  The trend picture is undoubtedly bearish on the daily chart.  Much like the stock market indices though, we are getting a short term rally, which is probably an opportunity to look for a short entry.   It may be worth trying to watch for a signal line cross back down over the base line on the 1H chart, for a short play.  The wind is already at our backs, as they say looking at the higher time frame.  I haven't really looked at it yet, but buying a vertical put spread slightly out of the money and a couple strikes wide is probably the way I'd want to go.

Silver

Looking at the lower 4H chart, my best guess is that it's in a triangle wave b of  maybe subminuette degree. If so, it'll continue sideways to down, and eventually break out to the upside.  That breakout will not make it very far, however.  It will most likely stop and reverse at an area near the 38.2% retracement of the prior down move or around 31.659 on the /SI.  This is another case of letting the rally happen and watching for the next break down.