Since then it looks like the HT path was taken. This was clearly not my primary choice and it clearly points more toward Avi's model being correct in that a break below the top rail (which was tested last week) followed by a breakdown of the bottom rail (has not yet happened) will be good confirmation that it is in fact an HT and if that is the case then LUV has only one more wave down to go. It should be a doozy in percentage terms and it should play out quicker than the relatively slow moving A wave. Never forget that HTs are always penultimate. This is one of the very few hard and fast EW rules and thus it is our friend. But do keep in mind that a potential HT is not the same as a confirmed one.
For options fans, this is likely a very nice chart setup. The reason is that this is clearly not a motive wave yet the media says "all clear for airlines". They admit that the airlines have been benefiting from absurdly low fuel prices and they admit that instead of saving these windfall profits for a rainy day, CEOs are out buying back their stock at the highs. So basically, a profit collapse is built into their model (unless they foolishly think commodities will remain this cheap forever which is patently laughable) and the airlines themselves are now a major buyer of their own shares. What happens when oil goes back up and profits collapse? Who will be left to buy the shares then??
This seems like a self serving short term strategy for the top management who defend these morally corrupt but legal (so far at least) moves in the name of maximizing shareholder value. A much better use of the windfall profits, I contend, would be to hedge fuel prices for the next 5 years thus avoiding pump and dump whipsaw for the business. But they never do that because they are managing the business in order to maximize their own personal returns on their stock option packages, not the long term health and viability of the airlines. Why do you think all the airlines eventually BK? Con men are running that game, that's why.
That 3 wave move up into blue A of black B is just what you would want to see if a HT was playing out. Additionally, The C wave, should it occur at all, should be at least the same length as A which, if reversal downward began to occur early next week, would put a likely price target of $25 on these shares perhaps as soon as the end of the year, perhaps by the end of January. So the Jan $25 puts could likely close in or close to the money.
By the way we now have another great opportunity to test the value of the Elliott wave principle relative to "fundamentals". If you watched the vid, the "pro" analyst Elaine Becker, who actually gets paid to open her pie hole on national TV, says that Southwest is her top pick in the sector. BUY BUY BUY, right? Buy right into the teeth of what is likely going to be E of 4 of B. BUY right before the shares have significant odds of collapsing from $40 to $25.
That is what the "fundamentals" are telling Elaine to tell us to do. I respectfully submit that Elaine doesn't know jack shit about what moves stocks. This is, to the casual observer, a very risky call by me. After all, she is on TV and I am just some blogger. Additionally, she has a fancy college education and a title of "Managing Director" at a name brand securities company. Many will be impressed by these things but I see them as non-factors. Elaine is just running with the pack and because of that she don't know jack. Her modus operandi is to move with the herd and then be as surprised as everyone else when things turn against her suddenly. She has no real vision or insight and she damned sure doesn't communicate risk if she does see some.
I'm not saying that LUV must go to $25 from here; I do not claim to know the future with certainty. But I am saying that the risk of it happening is high (65:45 for as of Friday) and Elaine makes zero mention of such massive downside risk. Instead of telling investors to buy the dip, she recommended LUV at a top buy after a big rally has already taken place. To me that is a buy rating if not a strong buy rating. She did not say "if you have to hold a dangerous airline, hold LUV". No. Quite the opposite. She pointed to strong earnings by other airlines and suggested that we were entering a seasonally strong period. These are the "fundamentals" she quoted but of course to the chartist they are just exogenous factors which should be taken as a distant second in value to the wave count.
IF IF IF LUV breaks down the lower rail of that HT next week then the Vegas odds board jumps to 80% for HT confirmation and if we see that evolve into a small 5 wave motive move down that takes out both the upper and lower rails during wave 3 and then cannot hold the lower rail after the next bounce then the Vegas odds board on the HT issue has to move up into the 90% range.
Conversely, since HT completion and double rail breakdown is the expectation, if it does not happen early next week then I will be quick to change my count. This supposed E of 4 might go all the way to $43 to form a declining double top with the Feb 2015 top. If that happens it removes the limitation that current wave is a HT. In other words, it opens the count up for that rally being a deep vee 2nd. So before taking out any new short term (few months) options positions I would wait for this to confirm that it is a B wave per above.
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