And now we shall see about the fear.

In recent posts I predicted that fear was coming to the markets in a big way.  In anticipation of that I bought into VXX a bit too early but was vindicated by the massive move up in VXX and down in XIV (they are inverses - great for looking at the waves from both sides of the lake as it were).  Of course nothing goes straight up or straight down and so in anticipation of today's sucker bounce (at least that is how I am modeling it right now, I sold my VXX for a nice little profit but kept my goog june 14 840 puts (too high of cost to be in and out for short term direction changes.  It was a tough call since I had to get on a plane back to the US but I thought a profit is a profit and I expected a 10% sucker bounce so might as well side step that on VXX.  I probably should have sold the FAZ as well but I have seen that the bankers are weaker than other issues so I decided to take the short term hit to profits as insurance against my model being wrong.  I will say that I nailed the peak in VXX to within 1/3 of 1 percent just by counting the waves.

Well, the markets are getting their expected bounce and everyone is happy again.  But I think the markets are damaged.  I think confidence is fading and that "buy the dip" has turned into "sell the bounce".  I could be completely wrong about this.  Just because the 5th wave is called properly doesn't mean it is the 5th of 5th of 5th.  In other words, they can extend longer than one would think.  But there is a lot of other evidence including Bernanke tapering so I'm sticking with my market peak  call.  I think what will happen is that tapering will cause trouble but restoring the fed action to 85 bn will no longer be good enough.  The fed will have to sweeten the pot.  But since most Americans have no $$ in the markets, they do not like the CPI price inflation and since interest rates are probably on the rise now the margin debt will be harder to take.  So more pumping will be needed to produce the same results as the last 2 years and I think the American people are weary of it.  Add it all up and I think the Ponzi Peak Pump is over.

So, back to short term charts.  Here is XIV over the past several days.  You are looking at 5 waves down and then an a-b-c retracement to the 50% fib.  That is bearish for the pump.  So now I am going back into VXX because I think tomorrow and the next day will take us into wave 3 down and it should be a real doozy.  The XIV should plummet while VXX goes up perhaps 15-20%, maybe more.  There is just too much risk to own stocks here.  Short sellers are going to take the markets to a bad place by the end of January and there are only a few days left to do it in.