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Trading Lessons

Stock Market Wild Ride About to Get Wilder...

Stock-Markets / Stock Markets 2018 Feb 06, 2018 - 05:47 PM GMT

By: Anthony_Cherniawski

Stock-Markets

SPX had a wild morning after the excitement of the overnight market. I left yesterday’s Fib scale on the chart to help tell us what is happening in a fast moving market.

The Wave 1 low was at 2638.17, where I left the bottom of the Fib scale

The Wave [a] high was only 2698.65. You can see the top of the hourly bar there.


Wave [b] declined to 2593.07.

Wave [c] rallied to 2682.10, leaving an irregular correction.

SPX may have resumed its decline in a Wave 3, in my opinion. From top to the bottom of Wave [b] is 279.80 points. Wave 3 may be a minimum of 2 X this number, or 560.00 points, putting the SPX beneath the Broadening Wedge target shown on the 2-hour chart at 2140.00.

This puts the 2016 low at 1810.10 in the sights of the Wave [1] decline in SPX. I may have the wrong degree on the Wave structure, but I will correct it as the decline progresses and the structure becomes clearer.

VIX has already gone from 50.30 to 16.80 and back to 34.38 in less than two hours. Amazing!

We are now going to see the tail wag the dog in the opposite direction.

ZeroHedge reports, “Less than a month ago, Goldman Sachs presciently published a note research report "VIX ETPs are now net short vega - should we worry"...

.... which as the title suggested showed that the net position of VIX ETPs has become short over the past few weeks, for only the second time in their eight year history.

This odd finding - namely that the VIX ETPs had shifted their traditional vol bias from long to short - prompted the Goldman strategist to ask glibly "Should we worry?"

Less than a month later we have the answer: Yes, Goldman, you should worry, because the historic short squeeze that took place overnight in VIX, which sent it over 100% higher - the biggest jump in history - was precisely a result of this Goldman observation, namely that ETPs were now aggressively shorting vol.”

ZH observes, “It seems like just yesterday the overly confident bulls were openly taunting any market participant that dared counsel about the increasing risks in the equity market.

“You don’t get it. Trump’s tax policies have ushered in a new era of corporate profitability. Why fight the rise? Nothing can stop this freight train.”

Yesterday’s data feed got revised lower again on the NYSE Hi-Lo Index. It appears to be perpetually behind the 8-ball. I have never seen this kind of disinformation before. I will continue to use it, but with a little trepidation. This may cause us to be a day late on taking profits when the reversal occurs.

I currently have no alternate to the Hi-Lo Index.

On another note, I have been called by people trying to day-trade this market and failing miserably. Frankly, with the major brokerage house getting stampeded this morning, I wouldn’t be surprised to see trading halted or delayed without notice so my plan is to ride out the ups and downs keeping my (well-established) short position intact.

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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