TVIX short term warning.

I think I have made it clear that the bull is certainly dying and might already be dead.  But it is not confirmed yet and until it is confirmed I will remain on high alert.  At some point I will back down from the paranoia and let the trend be my friend but we ain't there yet folks.

Which is why I want to call your attention to the recent chart of TVIX.  What I see is a clear 1 or A that broke above the long term resistance (green line in lower left, see larger view at bottom for more context of that down sloping green line).  Then an a-b-c pullback into 2 or B and then a 5 wave rising wedge followed by a small declining double top and then 5 waves back down into the channel.

Left as is, this formation is a big warning!  Right now it looks like it might a-b-c back to the top of the channel, kiss it good bye and then reverse downward to break below the lower rail.  Keep in mind that TVIX did not go down as far as I thought it should when the DJIA was peaking and then it rallied strongly for small moves down in the DJIA.  So it is NOT a 1:1 correlation.  The waves mean everything and anything that is not part of the wave count for TVIX is at best helper data and at worst a bad distraction.

If TVIX can break out of the top rail again then the rising wedge pattern is nullified unless and until it breaks back down into the channel and it is only confirmed on a break below the lower rail.    From an EW perspective it would mean that the move from left peak to test top of channel from above was an A wave, the move back up to a lower high was a B wave and the break back into the channel was the C wave.  It COULD be off to the races tomorrow IFF the next wave takes out the top rail again.

When I see that kind of head fake (form a visible pattern but don't confirm it), it usually means there are a lot of gains waiting and that the market is trying to shed the weak hands.  So it could be just as simple as that.  But make no mistake, this is a pivotal point in the ascendancy of TVIX.


Now, I don't want to throw cold water on the dollar run up we just had from the low of $2.50 but look at the chart below: TVIX just potentially did an a-b-c back up to a structure that is a triangle.  In other words a 4th.  When you get that combination you MUST suspect that the move was corrective and not impulsive.  Rising wedges have the habit of retracing their full length.  For people who do not want to trade too much, just set your stops just below the lower rail ($3.32) and forget about it for a day or two.

If you are like me, however, you will be watching to see if it can break out of the top rail or if it will just retrace back up and kiss it from below before heading lower and ultimately breaking down the lower rail as well.

Since I am swinging a big bet here I will sell if it approaches the top rail and shows any signs of losing momentum.  A good indication that I should hold would be a gap above the top rail at the open.  But if it gaps up near the rail then I'm likely to sell first and then buy back if it can subsequently break the top rail.  In other words, I would rather risk losing gains than losing capital.

• Expect turbulence, especially early on with TVIX.  It is going to happen!
• Trust the wave count and until you get verification, assume nothing.
• Use stops in case you are wrong about your assumptions.  Not using stops is a huge mistake that most people make.