TVIX: really critical inflection point and discussion of worst case outcome.

Folks, I never claimed to be able to predict the future and anyone who says they can consistently do so will generally be right in terms of EITHER direction OR timing but very rarely both (else they would be the richest person on Earth in a matter of a few years).  But I do think that EW analysis gives the trader a significant advantage over anyone who is gambling in the Wall St casino (with their retirement savings no less....) based on gut instinct and analysis of "fundamentals" alone.  Fundamentals analysis is always flawed in a credit-driven economy because it does not deal with what happens to sales when credit becomes expensive, unavailable, or simply out of vogue with the herd.  So I might quote PE. PS and PB from time to time but I believe what people should focus 90%+ of their attention to is the chart pattern.

I've also been on top-watching mode for about a year now while the markets continued to climb.  I think that the herd has been a bit afraid of what would happen if we let the debt Ponzi go bust and so the pump has remained on at all levels.  But I also KNOW that these markets are quite thinly traded as volume has dried up to perhaps 20-30% of what it has been over the last decade wherein boomers tried to make up for not having saved very well for retirement by doubling down on their 401k contributions.  So fewer and fewer are benefiting from the ending days of the 2009 market bull run and a major down turn must, at some point, occur. In fact, since so few are benefiting from the bull market, it's likely that an outsized portion of the population is not in favor of government doing things to continue supporting it.

In any case, my latest chart models presented in these pages suggest another topping opportunity has occurred and so I want to show a tale of two models.  The model marked by black numerals and a red chart prediction line is my primary model.  The alternate count marked in blue numerals and a blue prediction line is my alternate count which now is my worst case outcome.

The primary model observes that when the 3rd wave is extended, length of wave 5 is often = to the length of wave 1.  That seems to be the case right now.  The falling wedge likely marked the 3rd wave down in this case.  If this is the case then black 5 as marked below should be the bottom and there should be no trades lower than it.

If we begin to see any trades lower than black 5, I'm going to have to flip to my alternate model which would be to suspect that the recent sideways action is actually an inverted flag formation which is really the "a" and "b" waves of 5, not the full 5.  In other words, the formation would be a falling, expanding wedge.  IF this is the case then we should see 5 waves falling to the lower rail and perhaps throwing under a bit.

As convoluted as it might seem, I actually like this outcome because it will be a clear technical bottom for TVIX and thus a very, very high odds play for a massive reversal.  I also like it because of the expected percentage loss of TVIX in this case.  If I am going to get stopped out, I want it to be because a huge percentage drop was right ahead of me.  Such a massive drop would enable me to nearly double my current share count.

The only problem comes for traders who are too stubborn to use stops while waiting for the final bottom to form.  They will let the shares fall and fall and fall with them still holding on while "hoping" for a bottom soon.  Hope is not a strategy folks!!  You can't win the king-rook vs king chess game with hope!  You have to play by the rules and the rules say that when critical support is broken you don't continue with hope.  You sell now and then look for technical evidence (i.e. a wave count) that supports another entry point.

I'm telling you right now, this is a winning strategy if played intelligently and patiently and emotion free.  If you play with your head, Wall St. loses its advantage over you.