Interesting youtube from EWI on today's peaking of wave 2 and reversal into the early part of wave 3 down.

The DJIA was tooling along seemingly without a care this morning after a big gap up when all of a sudden it reversed from being bright green to deep red before recovering somewhat into the close.  I have mentioned many times in these pages of how an AM intraday reversal should not be ignored.  It means something folks.  The herd is starting to show the first real signs of fear.  Come next week it should be a heck of a lot more obvious.

The talking heads, of course, tried to tie the stock movement to real time headlines.  They blamed the news about Ukraine attacking some blah blah (tune it out because it doesn't really matter) blah blah blah.  But EWI pointed out that EW followers expected wave 2 to end at about the price level that it did well in advance of the news.  Did EW predict a military attack?  Of course not.  But it did predict the odds that the herd would decide to react to the news with a sell off.  And in fact I myself suggested here that the rally would probably continue into Friday (which it did) and then require shorts to hold over the weekend lest they miss the big move down.

I like cats and I live with 3 of them (4 if you count the wife).  Sometimes I will walk by them and they will look at me as if I don't exist.  Other times, if I make the slightest move toward them they scramble like I was chasing them with a meat cleaver.  I'm not doing anything different, they are either ready to rumble or they aren't.  If I knew which metrics to chart in their behavior I am convinced that I would see clear EW patterns.  They don't know they are doing it but they can't help it even if they did.  The human herd is no different. Once we figure out that the news is noise when it comes to the stock market then we are freed from that anchor which hold most of the participants down.

Back to the idea that wave 2 is likely complete today, the first confirmation of this will be a lower low than blue 1 shown above.  A big gap down would be a huge confirmation as well.  Full confirmation is really only found by a lower low than the low of Aug 8th (black 1 in the model below) but if you are just now getting up the courage to put some money on the casino table, here is the play: Buy now in the AH if you are still on the sidelines and then get stopped out if the DJIA goes one penny higher than black 2.  You risk relatively little to make a bundle.  This is how the smart money plays the game.  Use the waves to identify likely entry points and use stops to get out if you were wrong.  Lather, rinse, repeat.  Buy and hold is for Mark and Patsy and I guarantee you they will end up getting fleeced in the end.  They were never anything but convenient targets for theft by the military industrial complex and those who run the big game.