Next week is a virutal ground hog day for short sellers.

Models are great because they give you things to look for that support or destroy your world view.  After getting fed the carrot or hit with the stick enough times, the modeler tends to learn what does and does not work over time.  But models are not crystal balls and nobody knows for sure what the future will bring.  Models only let you suspect and to look for some future path of the herd.

Non model factors are also very important as they set up the fundamental reasons for trend changes.  For example, with record margin debt in play and with an obviously cyclical credit cycle, we MUST be far closer to the top than to the bottom.  With investor sentiment, another very cyclical indicator at all time highs, again the top must be near.  So whether the crash begins next week or whether it is delayed until the historically dangerous market months of Sept, Oct and Nov arrive, a significant reversal is long over due.

Every big stock chart I look at right now is sporting a valid peak count.  The significance of this to me is simple: I should expect them to roll over very early next week.  This is what the models are telling me right now and so this is how I have to view the investing world.  HOWEVER (and this is one of the big mistakes that Prechter has made several times in the eyes of the investing public), as good as a count might look, there is usually at least the possibility of a better one emerging as more data comes in.  If this topping model does not begin to express itself very early next week, or worse yet, Monday is a significan rally then I go back to the drawing board.  I do not try to fight the tape and I don't recommend that anyone do so.  Markets, as they say, can remain irrational longer than you can remain solvent.  But they cannot remain irrational forever and my goal is to be there when reality sets in.

A recent comment came in by a reader that they will take TVIX down to $2.  Of course, since anything can possibly happen, this could possibly happen and in fact the low to mid $2 range is often where these leveraged ETFs make their big turns.  If next week doesn't begin a significant amount of across the board selling then it could be a sign that the herd has postponed the migration south until the end of summer.  For example, if GE were to break back up through the lower rail of its ending diagonal then caution would have to prevail. 

In other words, models are there in order to communicate trigger points and I will respect those triggers instead of having arbitrary price levels stuck in my mind in advance.  Having a view of expected price is still a good thing so that you are not surprised if it happens.  I wonder how many have been playing TVIX as a buy and hold taking hit after hit on the way down.  Internally they are thinking "how can it go any lower, complacency is at an extreme", etc.  This is how most people lose money gambling in the markets IMO.  You have to be willing to call your own baby ugly if the data tells you to.  Prechter does a bad job of communicating this and thus a lot of people disparage him because they lost money following his advice blindly, without doing any research or thinking on their own.  They wanted something for nothing and they got the usual reward of those who have that entitlement mindset.


In any case, here are the models for TVIX that I am using right now.  Note this is a log scale chart.  Log scale is very useful for options based ETFs since it basically shows you waves of percentage change vs waves of absolute dollar change.  Dollar change in options is not a very useful metric because their value bleeds off over time.  Informed gamblers only care about odds and percentages knowing that actual price will take care of itself if you do the above.

First, the very high level:

Zooming into just blue [5]:

Zooming into just 5 of [5]:

Zooming into just the ending diagonal 5th wave:

Just wave 5:

 Just wave 5 of 5 of the ending diagonal:
 

Note in the last chart that we had a small throw under @ what is modeled as wave 3.  So wave 5 could break it down one more time to a slightly lower low - likely a few cents to a dime tops.  But I really don't think so because of so many charts of large stocks right now.  I think a failed 5th would be an additional sign of weakness in the TVIX bear and it's the kind of thing we see at significant turns.

One more thing to keep in mind: TVIX seems to be tracing out an ending diagonal right now.  This could mean it is the 5th wave bottom or it could mean it is a 3rd wave.  Again, I have been seeing these diagonals in the 3rd wave position quite often of late and so we should BOLO the possibility of this just being the 3rd wave down.  In fact I hope that it is.

WHY??

We are mos def due for a near term bounce that could be the start of THE market sell off or just the fear setup for the big Q3 sell off.  The key clue here will be the presence of an impulse or a5th  correction wave off of the bottom of the ending diagonal.  If the ending diagonal bottoms, breaks back up into the channel and then hits ~$4.20 (the 38.2% fib retracement of that 3rd wave) in a clear a-b-c corrective wave and then begins to stall, suspect that it is really wave 4 and that the real wave 5 down will come.  But in this case I expect that 5th wave to be an inclining double bottom (failed 5th), not a lower low.   I would gladly bank a quick (2 week) 60% gain and then let it fall 1-2-3-4-5 to the real 5th and then jump back in for the real recovery.   These huge % swings near the bottom are why I have invested so much time in tracking this so carefully.