[INTC] update

In the backlink I provided this model.  It suspected that wave 3 of 3 down would begin immediately.  In an earlier post I expressed surprise that blue 2 could not make it back to the level of the prior 4th.  While I did mention that this was likely a sign of near term weakness, it did not click for me that it also probably meant it was not a proper motive retracement of everything since black 2 peaked in the model below.  The neckline broke down and so I assumed that wave 3 was in progress and 3rd waves don't tend to dally about.



This did not happen.  Instead, we got the action below and thus has required me to change the wave count.  Not the eventual outcome, likely, mind you; a crash is most likely imminent.  Simply the near term count.  This revised model makes more sense on a couple of levels.  First, it gives credit to green 4 as a HT.  I missed that before.  But now we see the relationship between W3s and HTs: The wedge can actually be counted as waves A and B of the HT.  I've seen this before but I don't think I ever shared it in this blog.

In any case using the new green count below we see a very clear motive wave down that bottomed and is now retraced to the 38.2 fib while at the sale time kissing the H+S neckline from below.

If this stalls here at the neckline and begins to sell off very early next week then I would have no choice but to count this as black 1-2-3-4 and then working on wave black 5 down.  That of course would be bad for Intel shareholders.  In this model, the neckline would have broken down during the 3rd wave and then the 4th wave back tests from below to ensure there are no buyers before going lower in search of buyers.  That would be 5 down and then we would see a-b-c back up to the prior 4th.  Well, the prior 4th would of course be about the same level as today!  So this suggests that Intel will be massively volatile but essentially sideways for a couple months.  In other words, down to the low $20s for black 5 and then a massive bounce all the way back to the level of the prior 4th which would be about today's price.  If that happens, buy the next series of puts because after 5 down and 3 back up the next wave will be down and it will be either a 3 or a C and that means super fast movement relative to time.  Options just love that.

But there is another possibility that in fact is more likely to me and that is the blue count below.  That count essentially says that the recent bottom wasn't wave 3 but rather 1 of 3.  Thus, the current bounce, which could stall at the 38.2 or which could hit the level of the prior 4th (i.e. reversal somewhere within the red oblong below).

If this bounce is black 4 then it must not come back above the neckline because that would bring it back into the region of black 1 and 4 cannot go into 1.  In that case either black 3 was really a C wave (unlikely to say the least given the fear level that has arisen in the VIX) OR the current bounce is 2 of an extended 3rd wave.  An extended EW wave is one in which it has 5 almost full size waves making up a given wave.  See how blue 1 in the model below was made up of green 1-5?  And now we are finishing up blue 2?  OK, well imagine blue 3, blue 4 and then blue 5 to all play out before black 3 is in.

When you have extended waves, the first two waves down tend to happen at the same rate.  That's because they are 1-2-1-2.  It's that next 3rd wave where you have a 3rd of a 3rd, in other words, 1-2-1-2-3 where the trap door of weak buy the dip hopefuls all get stopped out in a literal off the cliff, trap door opening move which crushes all hope for near term recovery.  Bob Prechter calls 3rd waves "the point of recognition".  It's where the herd knows that something is very, very unfixably wrong.  The fight to keep the fluffy Ponzi has been lost and retreat is ordered.

So my primary count of things is that this could trickle up a bit further to maybe even the 50 fib.  This would also be exactly the level of the prior 4th.  So, sucker in a few more Marks and Patsies who think that the flash crash is over, the bottom is in and off to the races for the bold.   But then open the trap door so quickly that many who just got back in are immediately underwater and afraid to cut their losses.  Those people will be doomed in this scenario.  The market is specifically targeting them.

Another reason I think this could go to the 50 fib would be to come back up above the neckline.  An important support line like that is either taken out as a 3rd wave or, more seriously if the market wants to make loud assertion, by a 3rd of a 3rd.  So that is my primary model:  trickle up to green 4 and then gap down 10% (or more) in a single day.  If you see blue 2 forming, I will say this: there will never be a better time to gamble on some deep out of the money puts. 



So, with all this said, let's zoom in on the structure of what is either black 4 or blue 2.  The chart for that is below.  The red path says that black 4 is the likely correct count.  The green path says that 5 of C of blue two still lies ahead of us.  Options people (AKA wild leveraged gamblers): this is your signal to buy the Jan $20 puts.  This is you believing that you know the ball will land on red 23 because you know that this game is not nearly as random as most people believe.  The blue path is also likely blue 2 because it would also have broken above the neckline and therefore into the region of black 1. The only distinction here is that it would count as WC2 because of CWT.



I'm going to keep repeating this because human memory is frail:  the above are just models.  They are an organized, pseudo mathematical approach to herd movement prediction.  As such, they might not pan out to be correct because the modeler is only human but they are not in any way random.  In fact, quite the opposite.

If you bet big and the model is right, you might win in a serious way.  But if the model is wrong you don't want to blow up your account.  So the best results for most people will be to bet small on any one play - 10% of your portfolio perhaps, and trade the big waves, not the small ones.  Use stops and if you get stopped out hard because of a gap up or down against your position, step back for a day and let the emotion wear off.

The worst mistakes I have made in my trading career were linked to my emotional desire to get back in there and "get my money back".  If you are thinking like that, you are in serious trouble.  Money lost is money lost.  It's not yours anymore.  Focus on being smarter and better prepared for the next battle instead of plotting revenge for the last one.  Calmly predict, using EW models, where the herd is going to pop out into the clearing.  Calmly get there ahead of them, set up your Gatling gun and mow them down when they step into your sights.  Don't chase the herd, let it come to you.  Leave your emotions at the door or Mr. Market will eat you for lunch, especially in the hyper volatile times that now face us.