Winding the coiled spring down harder on TVIX

In this post I revealed that I had bailed on TVIX for the time being because the action was just too sideways to meet my model criteria.  I needed to wait for a better setup.  It is a delusion to think that you have to be in play all the time.  I followed that up with this post to anyone still in it indicating that "one penny" below 7.22 meant the bet was bust and it was a clear sell signal if that happened (which it went on to do).  Good old fear and discipline saves me again!   In this more recent post I noted that a break out or break down was imminent.

Today we got our answer: a clear gap down below the lower support line.  It could still be a 5th wave throw under and in fact that is my primary count for several reasons.  But before I explain them, if this is going to be the case then the chart basically has just 1 trading day to come screaming back up through both the lower and the upper resistance lines that are now in place.   Not that it must work like this but that it is no longer a 5th wave throw under if it doesn't.   It could easily happen but I did not buy speculatively even though it would have been a fair bet.

If TVIX cruises up and out the top of this triangle tomorrow then it will be April fools on the longs.

The main reasons I am maintaining the 5th wave throwunder as my primary count even with only 1 day to express itself are:

1. It would screw the largest number of traders.   This is the goal of the market at bottoms.
2. It ended at exactly 7.  Round numbers are often psych support points.
3. But mainly the chart per below.  By all rights, most people who count waves would count this as 1-2-3 down.  They would see any bounce here as a sucker's bounce and would not be able to get back in until TVIX had already left the station.  Missing the exact bottom causes lots of traders to paralyze.  The reason I think this is a 5th wave throw under is that it is coming out of what is obviously a huge triangle and so the waves should be 5-3-5 deals not 1-2-3-4-5.  In this 5th wave down, the A wave actually breached support but then rebounded because it will take the power of a C wave or a 3rd wave to do the real damage.  Then the B wave rebounded and now the C wave has played out.   A big part of my call here has to do with the often overlooked feature of triangles being the penultimate wave.  All of that action up against the upper rail that could not break out formed a clear triangle.  That strongly suggests to me that the next 5-3-5 sequence would be the last of the triangle's sequence.  Had it broken to the up side I would be calling it a massive 4th wave and then looking for some more downside.  But instead it broke down and that throwunder seems like a buying opportunity.

 The plan on this is again so simple.  I have a chart model.  The wave is near what I model to be a bottom.  So I can buy at the open and then set tight stops right below $7 - say $6.95 and then walk away.  The chart will either take me out quickly for very little loss or I will have caught very nearly the exact bottom.  I can do this for the rest of April with no problem if needs be just in time for the Walk Away in May that I think is coming.  Heck, I can do it until Sept/Oct if they want to drag it out that long before the collapse begins.  But looking at stocks like PCLN and GOOG and CMG I think it would be difficult to drag this topping process out that long.  Instead, I think we get a down draft into summer and then a summer rally that leads to a lower high before wave 3 down hits in the deadly months of Sept or Oct.

Again, it's nice to pick the right model the first time but it is faaaar more important to egress a trade based on the wrong model as soon as a trigger is broken.

I expect that tomorrow TVIX will tell us a lot about the direction of the markets for the next couple weeks.