Weak $COMPX recovery predicts big break down tomorrow.

Per earlier posts, I think the big picture is an ending diagonal that will end in May.  But for now I think we have to hit the bottom of the channel to set up for the next move up.  Those paying attention will know that I think this year will be a "Walk away in May" year.  The negative January Effect will have been forgotten by most traders by then but the chart knows what it's doing well in advance.  Just as the chart of the solar generation farm forms a rounding peak at mid day before rolling over, so it is with the broader markets.  The energy source of the solar panels is the sun.  The energy source of this crazy stock market is credit.  Now way would these market be pumped like this without credit.  And the credit is waning.  So the markets will wane.  Those bigger picture models help me stay the course through the volatility that masks the underlying curve. The long day that we have enjoyed in the markets due to credit expansion of the past 30 years must transition into a period of night.  The stock markets are getting ready for lights out in 2014.

But back to the nearer term, we still have to play out the ending diagonal (IFF my model is correct of course) and to do that we need to head to the bottom of the channel.  Since I do not think I have posted what I am modeling that to look like for the NASDAQ (only for metals and miners), here is the bigger picture.  The next move I am expecting is red 4 below.

That will likely finish either a C wave (meaning new big bear market) or a 3rd wave (meaning pull back to the prior 4th which would be the level of red 2 below).  I currently model this as the end of a large C mainly because I see the end of it taking us to $COMPX 4400 or even 4440 which is a number with special significance that I will not share because nobody would believe me if I did.  But if this does peak at exactly 4440 then expect great pain to follow.



This ending diagonal model is currently at a very fragile state.  While it looks and smells like it will happen, a butterfly flapping its wings in Japan could greatly alter its shape right now.  In other words, the market is undecided and the battle between bulls and bears is stronger than it has been in a long time.
 
Below is the 5 minute chart of the NASDAQ Composite.  I model that 1 of A and 2 of A have now completed.  Wave 1 down was a clear 5 waves and today the markets failed to achieve a new high.  That leaves us with a declining double top unless something big happens to change it.  If this model is correct, the markets will likely move down pretty quickly in the morning because 3rd waves are generally the most powerful in all aspects and also because the big bounce that this 2nd wave took needs to be unwound in addition to adding the downward motion of a 3rd wave.  The net effect should be to impart fear into the markets to get people to sell into the bottom of the ending diagonal only to whipsaw them to a higher high in the expected throw over near May.

Yes, I admit, that is a HECK of a lot of speculation and very forward looking.  That means it's risky.  That means it has to be watched for trigger points.  For example, if the markets come out of the gate strong tomorrow I have to be prepared to quickly dump the big chunk of TVIX that I bought in the late afternoon today.  In fact, my trigger is the 1-3-5  line shown in purple leading up to the "2" wave below.  It's out of my hands.  I already put a trade trigger into TDAmeritrade.  This either breaks down or I go to the sidelines to do some more thinking.  This strategy enables asymmetric gains by picking entry points that I think represent important turns and then bailing out quickly should I be wrong.