TVIX update

In this post I modeled a near term topping of TVIX which did occur and which I think is likely still playing out.  The general theory is that major turning points are not accepted readily by the herd and so instead of a nice vee wave bounce off the bottom we have this long drawn out affair which is steadily gaining strength but which people still remain unconvinced about.  So for this first wave up, designated green 1 below, we have to suffer through an expanding wedge.  The suffering comes via the mechanism of whipsaw whereby lots of stops get taken out and market participants become weary.  There is no "set and forget" right now for anyone betting significant amounts because during this kind of formation you get an 18% gain one day like we did on the 17th of this month only to give most of it back over the next trading session.

In any case, I modeled 5 waves up in the expanding wedge and now we see it has reversed down and then tested that new support line.  Wave A down of the retracement was not powerful enough to break down that top support line which has gained incredible strength in a very short time.  However, I think wave B ran out of steam without creating a higher high and so I expect Monday that the market will take another run at that support line and this time it will break under the power of a C wave.

Now, here is the important part to keep top of mind:  IFF this breaks down the top rail it could either be a C or a 3rd.  While EWI thinks the market has peaked (and so do I), prudence (and the practice of discipline in matters of enlightened self preservation) demand that we consider and watch for the possibility that what we just saw was not wave 1 up of a new bull market for TVIX but rather just wave 4 of 5 of 5 of 5. 

If this is just wave green 2 playing out then it should happen as an a-b-c as shown above.  It should likely retrace to the 50% fib or just as likely all the way back down to the prior 4th at $2.75.  The key will be the wave shape.  We need to see 5 clearly formed waves down before even thinking of buying back in IMO.  They will likely and hopefully be clear and easy to read because C waves and 3rd waves tend to have that quality.  My plan is to buy back in either if a higher high occurs (higher than what is marked as black 5 above) or after we get 5 waves down into either red "a" / green "2" above.

Assuming the second scenario occurs (an a-b-c to $3.30 where C is 5 clear waves down that smashes through support during its 3rd wave), buy the 5th wave dip of C and then set stops below that point.  If this turns out to only be 3 of 5 down to lower lows, you get stopped out with little loss an can buy a lot more shares at the bottom of the 5th.  After the recent action in the DJIA, that would be a real gift for anyone paying attention.  I think the chances of it happening are getting thin because people are starting to show some fear as evidenced by my long-awaited "300-500 point down day in the Dow".

Good luck, fellow gamblers.  May the odds be ever in your favor.