My EW model for M+M is looking good, S+P finally peaked today.

First off, the success story.  Metals and miners are, so far, playing out per my models.  JNUG did indeed take an AM dip and then rallied up to $18.70.  Both of these moves were pretty well predicted by my M+M model.  I summarized today's action yesterday when I wrote:

"...I expect a pullback in the AM which I hope will give me another buying opportunity.  After 5 waves down from ~$24 to ~$15.70, I expect at the very least a 5-3-5 movement back up to the prior 4th to around $19. "

JNUG dipped to about $16.50 this morning before rocketing back up into the close.  But folks, my model says that this is quite likely an a-b-c retracement.  So I hope nobody chased this thing up into the close.  I suspect that selling into the close was the smarter trade.  Time will tell but after I bailed on JNUG I got back into TVIX @ $6.27 right near the close.   JDST would have been the higher leverage play but I want to see evidence that JNUG is entering a 3rd wave down before holding JDST over night.  I'll probably wish I had just done it.  In any case if we see a pullback in JNUG tomorrow and then a higher high, the model is bust.  It will mean JNUG has bottomed and is now reversing higher.  I will definitely jump back in if I see that because it will mean that the recent big triangle was a 4th wave, not a B wave.  In that case, these past 5 waves down were not 1 of C but rather plain old 5 and a massive move up should be expected after the monster correction since mid March.

The S+P 500 and TVIX have vexed me for several days now but TVIX showed good support today in the $6.20 range.  I model that it will begin it's a-b-c bounce upward tomorrow.  Notably, the chart was able to break below the lower range of the ending diagonal and then break back up into the channel today and for many people that will mean that it has now reversed its trend.  I believe the reversal will be trade-able but short lived.  I model the move down to just below the support line as 5 waves, not 5-3-5 which I eventually expect to happen.  So I'm calling this 5 of A of 5 as opposed to just 5 of the ending diagonal.  Also, I would expect a much larger throw under for TVIX than that little divot.  As shown by the chart below (not to scale, just shows the general expected wave structure), the move back up will likely be somewhere between 6.84 and 7.24 (38.2 and 61.8 fibs).  It should be powerful and fast enough and convincing enough in order to sucker in more bears before reversing on them one last time for 5 waves down which would be the real throw under.   Whiplash is a favorite tool of the markets for shaking off attackers.

Alternatively, that little divot could have been the whole throwunder and now TVIX will skyrocket but I see this as a low odds play.  Typically when I see the A wave nub under like that it is merely telling me that it plans to break down to a lower low at some point but that it cannot just do that directly.  It has to put on a show of strength and become semi-loved again else there will be nobody in the ETF to shake out at the bottom.  What good is a shakeout if nobody gets hurt??   In that case it's all effort by the herd and no benefit.  Someone has to get hurt but with the dismal performance of TVIX over the past couple weeks there can't be many big money momo types in it.  The trap needs to be baited with honey and I intend to scoop up my share of it and then be out before the trap closes.

As usual, I have my stops in place just 1 penny below today's low.  The most I can lose here is 7 cents which is about 1% (assuming no massive AM gap down of course since I am again taking the risk of holding TVIX overnight).

Here is my TVIX model:

Here is my S+P 500 model:

S+P model says pullback tomorrow, critical test point soon; metals now in opposition?

In this post from last week I admitted holding TVIX from last Thursday into this AM.  I got stopped out today (really yesterday since it is now nearly 5am the following day) at the open for a very small loss and then turned my attention to finding an entry into what I believed would be at least a near term bottoming JNUG.  More on Metals and Miners (M+M) below.

As for my failed TVIX trade, I am shown by the markets once again that, at least right now (and this could change in the future), ending diagonals are not 5th waves but rather 3rd waves.  You can see  plain as day in the S+P chart below how the ending diagonal of the 3rd wave slushed into a clear 4th wave triangle and then the 5th wave that ended with a tiny double top.   At least that's how I am modeling yesterday's S+P move.

The S+P chart looks like a 3 wave retracement just finished.  While it is possible that this is wave 1 of a more bullish run given the multiple bounces at the start of it, this is not the chart character that I expect for that.  In fact, this looks like an internal wave of a triangle of some kind.  I need more data in order to better characterize it but this is not "off to the races" IMO.  This is more like "retracement withering and rolling over".  Tomorrow will very likely be a down day for the broader markets but I cannot say if it will be the start of an avalanche of selling or if the selling will find support at the prior 4th and shown below where the black arrow breaks out.  Traders should be ready for either path. But nothing can hide the weakness of this bounce in terms of wave shape.  Bottom line: markets will likely be red all day tomorrow and TVIX is a safe bet for a near term pop.


Below is the TVIX chart.  Note that it is typical for the A of 5th wave to kiss the support line that it will eventually have to break below in order to create the throw under.  I model the A wave as having finished today (Monday).  Now I think it needs to pop to between $6.90 and $7.10 (the 38.2 and 50% fibs) to form the B wave.  Then more selling and a breakdown below the orange support line on 3rd of C of 5.  When 5 waves down have completed into wave C of 5 ($5.50-$5.75 estimate range), buy, buy BUY and just hang on for a wild ride.   At such low buy in price, a rapid 50% gain is going to be a piece of cake and that's the conservative goal which assumes that this ending diagonal turns out to be a 3rd wave.  It might then break down and form a lower low 5th wave simply because as mentioned above, ending diagonals have been 3rds of late. 

But hey, 1 wave at a time, right?   A 50% gain with high confidence is nothing to sneeze at.  Note: the red model line in the chart above assumes this ending diagonal is the end of the 2009 bull market in stocks simply because of the Walk Away in May prediction.  This is not my official position, just a possibility. That walk away does not have to begin May 1st!  So if this ending diagonal is really only a 3rd wave then there is still plenty of time to create a 4th and then a 5th. 

But any way you look at it, there is a great depression in fear.  Everyone is complacent and thus not buying crash insurance (put options) insurance like they should be.  They are expecting the federal reserve to save them.  That is a bad, bad strategy.  They got their once in a general banker bail out.  It will not happen again.  The most likely time to need this kind of crash insurance, by definition, is when nobody is buying it because it means the trade is heavily weighted to the long side.  Like an Asian ferrry, when everyone is on one side of the boat they roll over so quickly that nobody can escape.

Switching gears, after getting stopped out of TVIX today, I recovered all of my small losses and then some by switching into JNUG at $15.90 after I counted that it had hit bottom.  I was off by just one small wave, 18 cents.  I rode it up until near the end of the day where I saw an ending diagonal forming and so I took profits at $16.84.  Unfortunately for me, the stock skyrocketed into the close and so I left another 50 cents on the table.  But I expect a pullback in the AM which I hope will give me another buying opportunity.  After 5 waves down from ~$24 to ~$15.70, I expect at the very least a 5-3-5 movement back up to the prior 4th to around $19. 

After that the M+M will have a major decision to make: was this past 5 waves down the full retracement of JNUG's recent run to $43 or was it just 1 of 5.  If only 1 of 5 then the retracement to $19 should be followed by a 3rd wave down which should be a real a$$ beating for M+M longs.  Right now I'm leaning toward this because that is how bear markets eventually end: capitulation bottoms.

By the way, as the markets were rallying JDST was rocking.  As the markets weakened, JDST peaked and did a bearish intraday reversal.  So at this point the M+M waves are now again out of synch with the broader markets

S+P 500 is right at the 61.8% fib and at or close to end of C wave.

I held TVIX overnight on Thursday because of the chart below.  I had forgotten that the markets were closed on Friday for Easter.  In any case, I'll sell TVIX and regroup if the S+P gains just 5 points from Thursday's close because it will invalidate my model.  I'm not holding anything unless I can make a case for why the deck is stacked in my favor.

But until I get stopped out, I rather like this setup.  It's not perfect in terms of wave formation but I can put in a count that shows 5 waves down and then a vee style "buy the dip because that strategy never fails" a-b-c wave back up to the 61.8 fib.  The ending diagonal has broken down lower support after a weak (surprising weak) throw over of the top rail.  Unless it can break back up into the channel it should accelerate to the downside in the AM.  Time will tell but I very little because of tight stops on this one. 

This is my bearish model on M+M - important indicator included.

You can make all the models you want but, like lightening, markets have a lot of leeway in how they play out.  You can say what they typically do and suggest this or that but there is always the element of controlled chaos.  The best thing you can do is make several models and assign probabilities and triggers to them.  The main benefits of doing this are that you are not surprised if the "unthinkable" happens and you are actively looking for signs that it will.

Before I go on, I have to say that the silver bulls are still very loud right now.  Many still call for immediate  hyperinflation even in the face of metals prices that are not in any kind of obvious uptrend.  Metals, especially silver, will be among the first to react to strong expectations of hyperinflation.  I don't see it yet.

Eventually the silver bulls will be right - very right.  I count myself among that crowd: long term silver and gold bulls. Trade the paper metals and miners according to the waves but buy the physical metal as lifetime savings that can never go bankrupt or be used for bail ins or be taxed away with the stroke of a desperate bureaucrat's pen.  I don't care what the day to day price of it is.  Even though I modeled the peaks of gold and silver to be peaks, I didn't run out and sell all my physical holdings because you never know at what point the collapse can happen and when it does you will not be able to buy any metals at all and your paper holdings will go worthless.
 
But I also know that we have a massive deflationary crash to work through.  Prechter is not wrong in direction.  He has math, history and logic on his side.  The only variation will be the exact timing and the degree which nobody can really know.  Everyone is building up for it.  Government is arming all of its agencies as if they were SWAT.  They hope to retain control of the scam after it collapses through the use of force.  Hollywood is fanning the flames as well.  Look at movies like Hunger Games, TV shows like Revolution, and songs like Adele's Skyfall (James Bond theme).  Did you ever read the lyrics to it?

This is the end,
Hold your breath and count to ten,
Feel the earth move and then,
Hear my heart burst again,

For this is the end,
I've drowned and dreamt this moment,
So overdue I owe them,
Swept away I'm stolen,

[Chorus]

Let the skyfall
When it crumbles
We will stand tall
Face it all together

Remember, in the movie, Skyfall was the name of Bond's family estate where grew up in.  But in the song it is used in the context of a collapse (the sky is falling so "let the sky fall").  There is also reference to drowning and dreaming which is a common nightmare (the end of the American dream?).  It obviously was in synch with the mood of the people since it grossed over a billion dollars worldwide, only the 14th film to do so ever.

But I digress.  All I'm really saying here is that metals and miners can still get sucked down in dollar terms (even though they will likely retain their buying power as other things fall in price like real estate).

And now to the charts.  I've been following the possibility for some time that the current wave is an ending diagonal but what if it turns out to be a horizontal triangle instead?  That would make it a 4th wave, 4th of C, not 5th of C.  The result could be as one of the two outcomes modeled below.

I must say, the count of that 3rd wave down (blue 3) does fit very well.  But this model gives us an important trigger to look for: how the 4th wave plays out.  In the chart below you can see that we are just a short move from kissing that support line.  While it may sound strange to say, it would be more bullish in the medium term to break down through it right now than to bounce off of it because if it bounces here then we have to expect that this was only the 4th wave and that after an a-b-c back up into red "e" (which can have a wide range but is more likely $21.50 than $25.50), another wave down will take us to lower lows.  If this plays out, that 5th wave should be about the size of the first wave which is where I got the lengths for it from in the models above.

From a trading perspective, a bounce here at exactly the indicated location would be a Godsend because it gives us a new reference frame to work from not unlike the key frame of an animation or of a compressed movie.  With compressed movies, only the scene deltas are stored.  These deltas are relative to a key frame.  As the further you get from a key frame, the more artifacts will be in the image. So the key frames occur in the video stream at regular locations in order to refresh the reference point.  The same is true in charting.

If we get that reference point then we can be highly confident that we will see a 5-3-5 (a-b-c) move upwards that will likely break out of the triangle just to show that the 4th wave is complete.  Once it reverses and breaks back into triangle, that is a strong sell trigger.  It would not surprise me to see 5 small waves up to kiss the top line from below, and then 3 smaller waves back down and then a break out on the C wave which then ultimately fails and forms a lower low than blue 3 above.

USLV update (M+M proxy) including possible scenario for flash crash metals wipe out.

Back in this post from Dec 2013 I speculated that Metals and Miners could be in for a nasty ending diagonal. In this follow on post I commented that the model had received a "shot in the arm" by recent trading activity.  While the current model for ending diagonal has morphed a bit, the ending price target is similar to before: $34-$36 for USLV.  The ending diagonal model seems alive and well in the current chart below.

Or is it?  This final wave down is not supposed to be 1-2-3-4-5 which is what it appears to be doing right now, it's supposed to be a-b-c formed of 5-3-5 and that's not what I am seeing.  Who knows, perhaps this is just A of 5 and there is going to be a bounce at bottom support that does not break out of top support but rather comes crashing back down for a serious M+M wipe out / capitulation bottom on massive volume.  In other words, something like the chart below.  It would have to swoop way down, blow everyone out of the water who had any stops at all and just convince people that silver was going to be worthless some day before putting in a serious vee bottom and then skyrocketing back up.  This kind of whiplash would have everyone panicking like there was no tomorrow about their metals.  Folks, if you see this it is not time to panic sell.  Its the time to dump all of your net worth into metals and miners when everyone else is running away.

Importantly, recognize in advance that if this kind of massive washout capitulation occurs there will have to be a cover story for the selling.  It will make sense in in some way to the herd but of course it will be bullshit.  Whatever fear they muster is only designed to scare the flock in the intended direction.  The metals world is not going to end tomorrow no matter what you might hear.  People will get shaken out at the bottom like they always do while the smart money just waits for them to panic and then goes in and scoops up the profits.

This is shaping up to be a very interesting summer.  If silver does this, what will broader markets be doing?  Perhaps it will be a replay of the flash crash but an order of magnitude bigger.  All we can do is ride the waves while it plays out.

Perennial loser AMD is now on my "Aggressive Buy" list

I worked at AMD for 14 years.  There are a lot of good people there but it always seems that arrogant losers and bureaucrats are put in charge.  It's like a socialist organization and I almost choked when I heard (back then) that Dirk (you know who) was referring to the Austin engineering team as "Central Engineering", a very communist theme.  AMD was also very early in embracing the "fusion" buzz word which of course originally meant the fusion of government and corporations against the people.  Finally, near the end of my time there, I came into work one day to find an expensive color glossy on everyone's desk that repeated the Fascist/Stasi Bush/Obama line of "If you see something, say something".  It had a picture of someone who looked like 50s Russian spy on it slinking around.

It has been 5 years since I worked there and I have completely lost touch with the place even though I still know talented people who work there.  I do know that some of the most arrogant techno-bureaucrats that were running the place ran off to Samsung to pollute its technology gene pool.  So I while I used to know AMD as a technology company very well, I can no longer say that.  But I also don't care because the chart is telling me that AMD is due for a big bounce into the coming 12 months.

As you can see from the chart below, AMD got 5 waves up into the A wave and then a 5 wave corrective move into B.  I count the early move up off that B as a very sluggish start of a C wave.  Investors just were not convinced.  To me that spells opportunity.  AMD only lost 20 million dollars this past quarter on a GAAP basis and it grew revenue.  AMD's fortunes have always been cyclic so I expect more of same going forward.

The red box is my target range which indicates I expect an easy double on the shares from here and perhaps a good deal more.  At the very least, C should be at least the same "power"as A.  That would move the chart up to about the $10 range.  But that would only be ~ the 23.6 % fib which it already tested once.  No, I think it blows through the 23.6 this time and hits the 38.2.  That price is $17.22 which is 4.6x today's price.  For that kind of a potential gain it is worth adding AMD to my aggressive buy list, especially given the long period of hugging the bottom since the 2008 crash.

I'll repeat: the news means very little.  The waves mean everything.  Try to remember that later on if you rolled your eyes at the prospect of crappy little AMD making that huge of a gain.  Yes, it's possible and in fact extremely likely according to my model.  Of course, these are just random thoughts, not investing (gambling) advice.

The justice department might just have been implicated in Lois Lerner's little conservative targeting scam.

The federal government finally responded to multiple FOIA (Freedom Of Information Act) requests which tried to get emails and other data that could be related to the recent tyrannical targeting of conservative groups, including the Tea Party by IRS.  What they found was that Eric Holder's justice department got requests from Lerner's team to help go after legally (trumped up legal attacks) those who were already being attacked financially by Lerner's corrupt politicization of our tax collection services.

Well no wonder Lerner doesn't want to squeal.  She would have to roll over on a huge organization that is not known for being gentle to its adversaries.  It's a fair bet that the "justice" department has a small army of trained mercenaries which it uses to attack those who are too difficult to prosecute.  After all, one man's justice is another's corrupt tyranny.

This could really turn into a big thing right now.  1 year ago it didn't seem to matter but now that the credit is falling apart globally there are far fewer people who are willing to lie for the establishment and I guarantee you that there will be a good number of them who come forward of their own accord asking for amnesty or a plea deal or witness protection or all three in exchange for their damning evidence against the massive corruption that I know is lurking within our government.  After all, this is how all organized crime syndicates eventually fail.  No, it won't be different this time.