Still, you have to give the old bull respect even if it is on its last technical legs because it has been on its last technical legs for months now, each time finding the energy to get up and fight once more.
So instead of falling in love with a theory, I'll just stick to the technical issues. First, here is what the buy the dip crowd will be looking at. The chart has been cycling between these two orange rails. Today it went down only far enough to exactly fill the gap shown and then began to head back up. At the same time, this pullback was to the 61.8fib, a logical, if not stretched/weak place for a reversal. Strong bulls do not retrace this far. They generally do the 38.2 or the 50 fib. Anything more than the 61.8 is a warning to me (except if a vee second which can often go 90+% in retracement).
In any case, I bailed on UVXY when that gap was filled because the chart could not just blow through it. I know there is the potential that we could just gap down from the open tomorrow to take out that lower rail and in that case I still have all my put options (which came alive again today) to fall back on as I find a good re-entry point for UVXY.
Now, if UVXY goes below that pink box then we know it is not being done in order to fill the gap; that requirement was already accomplished. The herd could still want to test that lower rail but in fact it was unable to make it to the top rail on the last rally so that reasoning is suspect now as well. What would send a strong signal that all is not well would be a continuation sell off into tomorrow that takes out that orange rail. UVXY would grow wings in that case.
As for the bearish case, here is my current wave count and the other reason I bailed on UVXY. In short, I model the first wave down as being the extended wave of the motive sequence. That was red 1. Then a-b-c into red 2 and then down into red w3. I will say that the count did provide itself with a possible tricky 3rd wave gap down potential for tomorrow's open but that is not my primary count so it is not annotated below. I'm more expecting a move to red 4 at the 38.2 as shown and then one more wave down that is just a bit smaller than red 3 was in vertical size. IFF all of that happens then I'll call it black 1 and get to the sidelines for a big vee type a-b-c into black 2 that should be all the way back up at 2034.
BTW, if the S+P bounce exceeds the 38.2 then I will have to rethink this model based on that new data.
Last January we had a negative January effect but no follow through. I do not think the market will shake off two negative Januaries in a row. Also, I'll be looking for the Dow theory sell signal. Again, the DJ industrials and the S+P500 and the $COMPX all made new highs during this last rally since mid December but the DJ transports did not. If a new low is made by the DJIA and the DJT at this point, that will be a Dow Theory sell signal and after as long and frothy as the 2009 bull market has gone on, nobody in their right mind is going to want to be holding the paper bag when a major indicator like that turns south. When the real selling begins in these thinly traded Ponzi markets it should be a real sight to behold.
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