Shorts, keep a weather eye out for the ending diagonal

I'm on record many times believing that it will be a walk away in May end to the entire rally since 2009.  This is mainly driven by the negative "January Effect" that we saw this year.  Well, here it is almost April and the markets have to make a choice: bounce up strongly 1 last time like a fish sensing its own demise pulls line off of the reel when it sees the boat or break down and take the gaff.  There are 2 main pieces of technical data which suggest to me that the markets will indeed bounce one last time.  First, checkout the$ COMPX chart below.

Importantly, look at that clear triangle that stands at the midpoint of wave 3 and 4.  It likely means that was an a-b-c move and so it's probably an internal wave of a triangle.  If this is the case, expect the markets to finish off with a bang that scares the last shorts out and even causes them to flip long.  That's the purpose of a throwover, so that old traders who do not use EW will think it is a real breakout and buy into it right as it reverses back down.

There is no requirement for this model to occur.  But anyone who is short this market should be aware of the real possibility of it and use stops accordingly.  Tomorrow will tell us a lot because if this goes down much more then it will not be an ending diagonal.  It really has to bounce tomorrow to have any chance of the model indicated below.

On another front, metals have been trading in sympathy with the markets of late.   Check out Pan American Silver (PAAS).  In this post I provided the model shown below, left.  To the right is actual.  This pullback is just what I would expect for a wave 2 retracement.  It's down around the level of the prior 4th wave.  Note that PAAS is exactly at the 50% fib right now.  Also, the waves that made up this C look correct.  3 of C has a gap, and the ratios of 1,3 and 5 look good.  Given the strength that PAAS buyers have been showing it would not surprise me if the shares find support here (instead of a trip further downward to the 61.8) and then move up strongly into a 3rd wave at the same time that the broader markets rally into their ending diagonal throwover.

If this happens, TVIX will stop out and you will be able to buy in below $6, maybe below $5 or lower.   The lower it goes, the richer I am going to be when the crash begins.  In 2009 I saw FAS (not FAZ) going lower and lower and it didn't stop until it was in the $2 range.  It could be the same for TVIX for all I know.  That would be a huge gift to those who time it right.

I will be watching the action very closely for the rest of the week to see if the broader markets look like they will get that one last bounce and if metals have found a bottom here.  I plan to buy USLV at the open and then set my stops for any lower price than the opening price (unless it gaps up, then I'll set my stops below today's close).  In other words, I think it is a good place to consider making a speculative buy on metals and miners because if PAAS can hold the 50% fib then the entire sector is likely to find support here.  I've also tightened up my stops on TVIX.   But the market is going to have to stop me out of TVIX.   I won't sell speculatively.  But the stop points are obvious as you can see from the chart below.  This break out is either real or a head fake.  If that down sloping green line cannot hold, run away from the head fake and go all in on metals.  Most people would view this as a pennant breakout but I have my doubts based on the look of $COMPX and PAAS being at the 50% fib as the result of an a-b-c retracement.

I say again, if TVIX cannot hold this breakout even for a second then sell and look for a lower entry point.