New model for FB suggests that it's bull run is about to hit a wall. I already called the top on this months ago at what I am now labeling as black 3 but the recent run is 5 waves and not 3 which means it was an impulse not a correction. The triangle at the base of it now makes sense. It was telling us there was one more wave in the entire sequence. The blue rectangles show that black 5 is now about the same length as black 1. Also wave 2 was sideways and in the model below, black 4 is a vee. That's good alternation.
Couple these observations with all of the other market data
showing that so many other tops are either near or just occurred an I
would say that FB is about to fall off its perch pretty hard. I think
now is a good time to look at those 2016 put options for those so
inclined. Even the 2015 45s could easily end up in the money. The Jan
2015 45s are going for, you guessed it, $0.44.
0.11
Hi Captain,
ReplyDeleteStill have 7 days left in the month to shatter your June record of 120 blog posts for the month. Keep it going!
Looks like the FB Jan 15 $45 puts have fallen almost in half ($0.24) since your post. Does the recent big pop kill this trade or is it still worth a lottery ticket buy? How about the Jan 16 puts? Which of those do you see as the best value?
Thanks,
~J.T. Marlin
Yeah, FB's ending diagonal was a 3rd, not a 5th. That's what that big "wad" in the chart during april and may seems to have been trying to tell us: that the next wave up would be the last one. Of course from a fundamental perspective, FB is a clear short. No way will it retain these price levels. Market cap today is an astounding, bubble-icious 192bn. It's totally laughable.
ReplyDeleteSo the question is: will this last one be a 3 or a 5. It is already very close to being finished with a 3. It could pull back a little and then go for the top rail @$88 or $90. That would be a clear 5th, no doubt a good short. Or, this could be a "3" as in an expanded flat.
I would let it play out some more before doing anything at all (buy or sell) of Jan 15s. There is still plenty of time for FB to collapse before the end of the year but this is why I like the leaps over the closer in options.
General rule for me has been: when I think a turn is happening, buy the leaps. That way if I'm wrong then there will be time to recover. This is why the only options (puts of course) I hold right now are jan 2016 GE 13s and JNJ jan 2016 65s. They are down 33% and 27% respectively right now. I will eventually cash them out for hundreds of percent of gains because I have time to let the sell off unfold.
But when FB traces out 1st down and then 2nd back up and is ripe for 3rd down, you can use nearer term options with better odds of not getting screwed. And when the model says the 3rd of 3rd is about to unfold then go even closer in with some spec $$. Again, always just odds, very rarely any certainties (else everyone would be rich and that is impossible in a zero sum game).
Options are fun and exciting to play but the vast majority of my cash is in TVIX right now for reasons stated earlier: instant liquidity and the ability to have a direct chart to model.
I have been looking for a bottom in TVIX since ~$7 but I haven't lost 1/2 of my money doing it and the reason is liquidity of the ETF without losing to a big spread. I think TVIX is a better play than options right now (near the turn). When I think the DJIA and S+P are entering 3rd of 3rd down, I will probably spend a lot more on plain old options than I am right now.
There is no single strategy that always works IMO. I try to look at it from all angles but the complexity means mere mortal minds can only do so much. Always JMVHO and good luck in whatever you decide to do.