I am traveling on business right now with no time during the day to look at stocks. So I set my stop on TVIX yesterday night at $2.99 and they could not take me out today. Now that I look at the chart, they tried like heck to do it in the morning but they could not reach down that far. Most people would be surprised by that but I am not.
Why? Because I was modeling this ending diagonal as a 2nd wave and in order for that to be true, the chart could not go, even for a second or even by 1 penny, below the Tuesday low of $3 which would have been required to take out my stop. This is not to say that I KNEW it would not go below. If that were true, why bother with stops at all? No I did not know for sure. But my leading model suspected it and so I am not surprised it held and the fact that it did, by only 1 penny, suggests that that ending diagonal was indeed a 2nd wave.
Please consider this: if they had taken me out they would have had to commit to another sizable (percentage wise) wave down. For example, it would have been something like the ending diagonal model I pitched here. It just wasn't worth it to the market to put me on the sidelines for. Trust me, there are computers out there that are running game scenarios 24/7 on the stock markets. They know exactly where "max pain" for the little guy lies. They know how the emotions of the herd work better than the herd does. This is how they make so much money for doing so little. The reason that the concept of stock markets will eventually fade into nothingness (which is where they came from in the first place) was explained clearly by the WOPR computer in the old movie "War Games": "the only winning move [for the herd, not the bankers] is not to play." The coming collapse will screw so many people so badly that the whole concept of "stock market" will cause good men and women to spit upon hearing the term. Warren Buffet's legacy will be as "that con man of con men who convinced us to put our money into the grand Ponzi scheme".
In any case, here is my updated TVIX model. I am keeping my $2.99 stop in place and I double dog dare them to take me out so that I can buy back in even lower. Instead I think we are more likely to see a gap up tomorrow:
A bit early to look so far ahead but it pays to be forward looking. Red 2 below is most likely to be a viscious vee type 2nd wave. The market will be a bit worried but not all out panic by then. It will be hoping like Hell that "buy the dip" mentality is in place even though the hope of the Bernanke Put is rapidly fading. After that dip, TVIX will skyrocket to $7 or $8 in the 3rd wave and that will really wake some people up. Stock insurance will become more and more popular as TVIX rises.
As the old saying goes, they hated it @ $3 but they will love it @ $60.
I think we have to get through this week going into the long 4th of July weekend and then we will know a lot more. Right now, TVIX broke down below $3 which was the sell signal. At the close it left off re-testing $3 from below. If this does not break out immediately tomorrow AM, the odds of a lower low (lower than the recent $2.92) go up rapidly. I am convinced that TVIX is near a bottom but we have seen these leveraged ETFs get moved around A LOT in a short time before. The smart trader will find entry points which are near technical triggers such as just after 5 waves down have completed. That way, if the model is wrong then you get stopped out cheaply and can buy even more at lower prices. This strategy has saved me time and again with TVIX and so I see no need to abandon it now.
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