S+P model says pullback tomorrow, critical test point soon; metals now in opposition?

In this post from last week I admitted holding TVIX from last Thursday into this AM.  I got stopped out today (really yesterday since it is now nearly 5am the following day) at the open for a very small loss and then turned my attention to finding an entry into what I believed would be at least a near term bottoming JNUG.  More on Metals and Miners (M+M) below.

As for my failed TVIX trade, I am shown by the markets once again that, at least right now (and this could change in the future), ending diagonals are not 5th waves but rather 3rd waves.  You can see  plain as day in the S+P chart below how the ending diagonal of the 3rd wave slushed into a clear 4th wave triangle and then the 5th wave that ended with a tiny double top.   At least that's how I am modeling yesterday's S+P move.

The S+P chart looks like a 3 wave retracement just finished.  While it is possible that this is wave 1 of a more bullish run given the multiple bounces at the start of it, this is not the chart character that I expect for that.  In fact, this looks like an internal wave of a triangle of some kind.  I need more data in order to better characterize it but this is not "off to the races" IMO.  This is more like "retracement withering and rolling over".  Tomorrow will very likely be a down day for the broader markets but I cannot say if it will be the start of an avalanche of selling or if the selling will find support at the prior 4th and shown below where the black arrow breaks out.  Traders should be ready for either path. But nothing can hide the weakness of this bounce in terms of wave shape.  Bottom line: markets will likely be red all day tomorrow and TVIX is a safe bet for a near term pop.


Below is the TVIX chart.  Note that it is typical for the A of 5th wave to kiss the support line that it will eventually have to break below in order to create the throw under.  I model the A wave as having finished today (Monday).  Now I think it needs to pop to between $6.90 and $7.10 (the 38.2 and 50% fibs) to form the B wave.  Then more selling and a breakdown below the orange support line on 3rd of C of 5.  When 5 waves down have completed into wave C of 5 ($5.50-$5.75 estimate range), buy, buy BUY and just hang on for a wild ride.   At such low buy in price, a rapid 50% gain is going to be a piece of cake and that's the conservative goal which assumes that this ending diagonal turns out to be a 3rd wave.  It might then break down and form a lower low 5th wave simply because as mentioned above, ending diagonals have been 3rds of late. 

But hey, 1 wave at a time, right?   A 50% gain with high confidence is nothing to sneeze at.  Note: the red model line in the chart above assumes this ending diagonal is the end of the 2009 bull market in stocks simply because of the Walk Away in May prediction.  This is not my official position, just a possibility. That walk away does not have to begin May 1st!  So if this ending diagonal is really only a 3rd wave then there is still plenty of time to create a 4th and then a 5th. 

But any way you look at it, there is a great depression in fear.  Everyone is complacent and thus not buying crash insurance (put options) insurance like they should be.  They are expecting the federal reserve to save them.  That is a bad, bad strategy.  They got their once in a general banker bail out.  It will not happen again.  The most likely time to need this kind of crash insurance, by definition, is when nobody is buying it because it means the trade is heavily weighted to the long side.  Like an Asian ferrry, when everyone is on one side of the boat they roll over so quickly that nobody can escape.

Switching gears, after getting stopped out of TVIX today, I recovered all of my small losses and then some by switching into JNUG at $15.90 after I counted that it had hit bottom.  I was off by just one small wave, 18 cents.  I rode it up until near the end of the day where I saw an ending diagonal forming and so I took profits at $16.84.  Unfortunately for me, the stock skyrocketed into the close and so I left another 50 cents on the table.  But I expect a pullback in the AM which I hope will give me another buying opportunity.  After 5 waves down from ~$24 to ~$15.70, I expect at the very least a 5-3-5 movement back up to the prior 4th to around $19. 

After that the M+M will have a major decision to make: was this past 5 waves down the full retracement of JNUG's recent run to $43 or was it just 1 of 5.  If only 1 of 5 then the retracement to $19 should be followed by a 3rd wave down which should be a real a$$ beating for M+M longs.  Right now I'm leaning toward this because that is how bear markets eventually end: capitulation bottoms.

By the way, as the markets were rallying JDST was rocking.  As the markets weakened, JDST peaked and did a bearish intraday reversal.  So at this point the M+M waves are now again out of synch with the broader markets