Keep your head in the game on TVIX.

Today played out pretty close to my previous model for TVIX.  Below left is the move modeled for today, below right is actual.  If the primary count (shown lower right) is correct then Friday finished wave 1 up which was an expanding wedge.  If that is true then today's action is an a-b-c into wave 2.  It's not shown below, but the pull back took back a full 50% of the wave.  That is fairly normal for a normal 1-2-3-4-5 motive wave but it is light for an expanding wedge which often takes it all back before exploding into the next wave up.

Generally, once you break back down into the channel of one of these, you are going down which is why I wrote this post on the subject.  Bottom line is that we could have just finished a 4th wave and are now working on wave 5 down which could retrace all the way back down (blue model on the right below) OR last Friday's close was the end of wave 1 and we finished wave 2 today.

So you can see how the wave works differently depending on what position we find it in (4th or 1st).  My current model is that Friday ended wave 1.  Note that the DJIA, etc. have not finished wave 1 down yet - we should see that tomorrow.  So the stock insurance market seems 1 day ahead of the stock market right now.

Here is what I will be watching for tomorrow:  If we get 5 waves up that are weak and which can only re-test the top rail from below without clearly breaking it then the blue path becomes much, much more likely.  Why??  Because once 5 waves complete downward in the broader markets, they will get the biggest rally since the bear market began.  If TVIX has not cleared that top rail it will go down hard during the broader market sucker's bounce.  I actually hope this happens because I have already scooped up about 40% profit since the bottom.  I plan to wait for 5 up and then back to the sidelines again.  If this subsequently dips back down to give me another shot a low entry point in the $2.65 range I will be jumping with joy because I will know that a massive percentage rally awaits me.

Of course, since I am ready for it, TVIX will likely not give me this opportunity and instead we will get something like the red path.  Not complaining, just saying I would rather have the blue.  The best chance to double dip on something like this is during the major turns when the market is not really sure what will happen next.  The reason I think today was wave 2 is because of that fat triangle that formed on top of the upper rail.  It suggests to me that it was a B wave in an A-B-C sequence down to 2.

If the red path is taken, expect a back test of the top rail from above after tomorrow's TVIX rally.  That would be the result of the broader markets rallying into wave 2.  Now hear this: if that top rail holds support during the subsequent pullback as shown above (and I think it well might), that is the market really telling us that "it's on". 

Why? Because after the DJIA hits wave 5 down, it will rally back up to the prior 4th and that should mean TVIX back to today's low.  But if TVIX stops at that top rail then it is poised for a massive percentage move into 3 of 3 without any real resistance to speak of.  In other words, it will signify the start of panic by market participants and nothing works to sell stock insurance like market panic.

Of course, if all of this volatility is not your bag then you can just buy and hold.  You will likely be looking at a triple off the bottom within 6 weeks IMO.