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Trading Lessons

Stock Market Short of the Decade?

Stock-Markets / Stock Markets 2016 Jun 15, 2016 - 04:59 AM GMT

By: Anthony_Cherniawski

Stock-Markets

SPX has completed two impulses down. Wave [i] ended at 2088.30. The second impulse ended at 2064.18. If it is Wave [iii], then Wave 1 may end near 2035.00 to 2040.00, a bit short of our initial target. The second impulse has filled its only gap this morning, so it is not acting like a Wave [iii]. That suggests something else is going on.

If this is a {i]-[ii], (i)-(ii) combination, then Wave (iii) may be a multiple of the two combined waves (56.37 points).


One possibility is Wave (iii) may be 3.618 times the combined Waves {i}-[ii]. (i)-(ii). The Wave (iii) target of that combination would be 1870.59, just under the daily cycle Bottom at 1875.09.

There are other multiples and combinations, but what I am attempting to say is that this decline may be larger than anyone suggests at this time.

VIX normally would be pulling back to retest the trendline of the Broadening formation. The change in behavior suggests there may be more to come. The decline of the SPX beneath the 50-day Moving Average has taken the risk level of the market to a higher level. This may be reflective in the VIX.

ZeroHedge writes about JPM’s quant guru, Marko Kolanovic, who observes, “About ~$1,000Bn of S&P 500 options expire this week. The gamma imbalance turned towards puts yesterday ($9bn per 1% currently), and this will likely push realized volatility higher near term. Post expiry, clients are likely to roll put strikes higher, which will also be supportive of higher volatility. Yesterday’s large move on the VIX indicates short gamma exposure of dealers on VIX products as well.”

This suggests that VIX is building up quite a bit of upward pressure that may accelerate as the week progresses. This falls into line with the idea of a virtual eruption of volatility in the next few days.

If so, this will be the short opportunity of the decade.

Regards,

Tony

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals.

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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