Saturday, May 29, 2010

Weekly Commentary

I've completed the tasks to provide a longer-term signal that incorporates I1 and some of it's components that show a tendency to mirror market psychology when in elevated or depressed levels for extended periods.  It has a very good track record for issuing multi-month signals, superior to the smoothed I1 that I had previously devised for longer-term signals..
I've placed the info on a separate page Longer Signals using Time Elevations.  Currently the longer-term signal is down into July:

I am flat at this point in all markets.
The wave count is a 5-up from the May 25 low for cash markets and a 3-up for futures.   As long as SP futures remain above 1084 and ND futures remain above 1832 then the 3-wave becomes a 5-wave on rally to new highs. 
The daily technical composite has registered a buy signal passing +26 that will only be neutralized by a return to +4.  Does this return have to happen?  No, it can keep going to +36 the intermediate-term signal.  But it has stopped and partially reversed.  The odds are on a return to +4.

Friday, May 28, 2010

5/28 Daily Commentary

A late-breaking development has turned my head.  Spain's downgrade sparked a 5 down into the close with carryover into the evening session.  I want to get short here a little bit, but only on a rally.
Prices carried down to the 30-minute support which will only be broken on a decline through 1077:

That decline would bring it right down to it's critical support, which is the 60-minute.  That -1.65% brings us right down to our friend at 1056:

Notice that the decline only brought price slightly below the neckline.  In addition, 60-minute support is at 1080.  This support is the futures equivalent of the 5-minute, 380-unit M/A DJI cash market critical support.  The cash market just barely broke beyond the upper range (10,365 vs. 10,357 outer limit).  The futures decisively broke beyond it's support outer range at 1089. 
So, the battlelines are drawn.  A tiny short position is warranted due to the fact that the Spain downgrade should re-ignite contagion fears.  I am putting in an order to buy 1% SDS at 34.15.  Currently 34.35.
This is supported only by the I1.
On the other hand:
a)  Technical oversold condition has yet to work off
b)  The head-and-shoulders appears intact
c)  Futures have rallied beyond their critical resistance (60-minute) and are coming back down to that support
d)  I count wave 1 complete at the recent lows and a larger bounce is warranted
If prices break 1056 then I will be proven wrong about my wave count and adopt EWI's count.  I will also go short at that point.  Futures are at 1088.50 now.  What are the odds that futures will break 1056 by 8am Tuesday?  Unlikely, 33 points.  So I don't risk a large gap down beyond my action point.

The Weekly will post tomorrow evening assuming I work through the remaining software tasks.

Happy Holiday!

5.28 closing

Spanish downgrade at 3:35 pushed market into a 5-wave down.   I'm putting in a small order at 34.10 ARCA.

5/28 3:35

Stock market has not rallied enough to
a) work off oversold condition
b) "look right" to correct a move as large as wave 1 was. 
Even though I1 starts accelerating over the holiday I'll still wait for more move.
Critical resistance has held at 10,263, so if this holds Tuesday I'll seriously look at shorting because this wave 2 should go in a hurry.
The Weekly will come out tomorrow as the software is not quite perfected yet, but the enhancement for isolating high-percentage long-term trades will be there.

5/28 2:22

Exit short now.  Wave B looks cooked.

5/28 1:40

Stocks hit target 1089.40.  I took my profit early and stayed out.  Question is whether wave B is done or not.  It qualifies in price and time, but I think one more low.  The simple thing to do is hold short against a stop of SPX 1093.20.  The gutsier of you can target SPX 1081.

5/28 12:07

I use DJI 150-minute +/- .4% to calculate breaking short-term support. Frequently this brings an immediate spill. Not in this case. As long as this M/A is not broken by 40 points to the upside the sell is in place. I saw a 5-wave up and took the pullback. Currently this resistance is 10,200 + 40. So with this method hold short until 10,241. I think we are in the B wave, but I will re-short at SPX 1101.

5/28 14:40

Sold 2.5% SDS to get flat at 34.10
Saw a 5-wave up.  I think it is wave a,  in wave c now but I am flat.

5/28 10:57

Duh, miscalculated.  DJI 10,174 and it will spill.  Sorry.

5/28 10:52

If it breaks DJI 10,184 it will spill down.  If you want to show some guts target 1080 instead of 1089.40.

5/28 10:50

Target SPX 1089.40 to sell SDS

5/28 10:20

DJI hit outer envelope of critical resistance 10,240.  Bought 2.5% SDS at that point, 33.69.  Stop at DJI 10,265..

5/28 pre-open

I count wave A complete. If this is correct and the 5th wave of A does not extend, then we should see a pullback. This would provide an opportunity to lighten up. Wave 1 from 4/26 is complete at an important low in an oversold technical condition. When the wave 1 low is broken it will break the back of the bulls. Every bear market has this seminal event. That low is the bull's Maginot line. In order for wave 1 to be "worked off" in wave 2 the DJI must go to at least 10,500. The H&S target is 10,600.

I1 governs trader psychology. However, at critical juncture there are larger forces at work. Big fund managers are committing capital seeing a buying opportunity in a bull market. Biggs, Mobius, etc. are only the vocal ones and, until the technical oversold condition is worked off they are making money.  Unless they are nimble they are going to eat those shares later.  Wave 1 is a 5-wave down.  It is a big deal and will require more than 3 days to correct.
Here is a chart of SPX with the H&S and target:

Thursday, May 27, 2010

5/27 7:58pm

Sold SDS at 33.60.  A few ticks better than if I'd stopped out. 
I like to fade nominal breakouts from chart formations if other considerations indicate the opposite.  When Edwards and Magee were doing their work the concept of chart breakouts was obscure.  Now, millions of investors base their decisions on them and their breakouts are more subject to reversal. 
The breakout to 10,225 seemed ideal to this purpose.  I miscounted and another wave up ensued which validated the head-and-shoulders breakout.  If the rally continues tomorrow as indicated by the breakout then wave 2 will extend into next week, probably selling Tuesday.  Of course, if the rally continues overnight then the top of wave B is a few hundred points higher.

5/27 Daily Commentary

Went short at SP 1098  cash mistaking the count as complete.  This would have been a false breakout from  a head-and-shoulders bottom (seen on the DJI chart).
Stop was DJI 10,257. Market got up to 10,263. Kept the short on. Futures SP high 1103. Anything over 1103.50 and I'm out. The stop at SP 1103.50 is key to preserving capital on this trade because the push to 10,263 confirmed the H&S breakout.  If SP futures are not below 1098 by 8pm then I am out of the trade.

The DJI 5-minute, 380-unit M/A +1.2% also requires 10 points slack in normal volatility.  It computes to 10,125 + 122 = 10,247 + 10 is how I got 10,257. 
Too close.
One of the cardinal rules is to never trade against I1.   Even though I know this is an extended upward correction I behave as if I have handcuffs.  I1 is going down so no longs.  Picking a short opportunity in a rising market may seem self-defeating but we'll know tomorrow morning.

5/27 3:22

Wave A appears complete.  Buying 2.5% SDS. 
Market at outer limit of critical resistance.  Makes sense to short here with a short throw on the stop.
Got 33.96
Stop DJI 10,257

5/27 12:30

I define critical resistance for my short-term trades as DJI 5-minute, 380-unit M/A +1.2%.  The current outer range of this M/A is 10,260.  Breaking this will further confirm wave 2 is in force.  A breakdown out of the current trading range will confirm wave A is done and B is in progress.  The count suggests 1 more move to complete wave A.

5/27 11:40

M3 for April year-over-year is down 5%.  Jack says that 1st quarter M3 was down the most since the great depression.  I believe that a primary reason is that the Fed has lost it's ability to force monetary policy on the rest of the world.  Another is the derivative unwind.  Repos and Eurodollars are included in M3.  With the crisis in Europe the amount of Eurodollars should go up in future.  Repos are partially tied to derivative creation in financial assets. 
My count for the decline from 4/26 is a 5-wave into yesterday's low, making that low wave 1 and our current rally wave 2.  This differs from the Elliott Wave International count of wave 1 occurring on the flash crash day and wave 2 occurring on the EU bailout plan. If this rally ends below 10,500 and ends tomorrow I will re-label to their count because wave 2 should last more than 4 days.   If the rally takes us up beyond 10,500 or extends into next week then EWI should re-classify the count to end wave 1 yesterday.  The chart also includes the 12-day M/A.

5/27 10:00

Technical oversold can only be relieved by higher prices and time.  Futures confirmed wave 2 is in force by rallying to a new high well beyond the wave iii high 1084 yesterday.  The technical composite is +27 or on a buy signal. 

So, when do I expect this oversold rally to finish?

The 5/31 and 6/1 changes in I1 are the acceleration phase.  5/31 is a holiday so I will short Friday afternoon or when ABC appears complete.

5/27 9:30

Wave 2 is in force.
Wave A of 2 appears complete or nearly complete (one more high).  I am flat until either ABC is done or 1056 is broken on the downside.

Wednesday, May 26, 2010

5/26 Daily Commentary

Brought exposure up to 5% at SDS 34.90 and 34.54.   Did a dumb trade selling at 35.06 expecting an imminent breakout to the upside and instead got an immediate break to the downside.  Wound up buying back at 35.35 to keep 5% exposure.  Sold 5% at 36.40 after the close.  Flat now.  Profitable over the past couple of days, a real feat.
I sold because futures have formed a simple 3-wave up sequence off of yesterday's bottom.  The decline this afternoon brought SP futures back to the top of what I classified as wave a.  If wave 2 is in effect then prices will rally from here and a new high will occur and I will re-classify as a 5-wave up.  If prices decline any further than the following chart indicates (below 1056) then the rally is done and new lows are in store.

I must expect prices to rally from here in order for wave 2 to be in force. If so and new high is registered then the following is the count:
In order for wave 2 to correct that large a move there NORMALLY must be time or price or both. Neither has been sufficient. The 38% retracement is 10,350. The time requirement is minimum 3 days.
Offsetting this is a declining I1, a big deal in my book.
In addition, the market held at critical resistance at the 5-minute, 380-unit M/A.
The fulcrum point is right here on SP futures.  1056 must hold for wave 2 to continue upward.
Another confirmation would be bond prices passing 125'08.

5/26 4:37

Sold 2.5% SDS at 36.40

5/26 4:37

Sold 2.5% SDS at 36.40

5/26 3:30

Got out of SDS at 35.06 and have re-entered at 35.35. 
The reason for exiting mistakenly is:
I believe that wave 1 from the 4/26 high is done, at the Feb lows. 
In order for wave 2 to correct that large a move there NORMALLY must be time or price or both.  Neither has been sufficient.  The 38% retracement is 10,350.  The time requirement is minimum 3 days. 
Offsetting this is a declining I1, a big deal in my book.
In addition, the market held at critical resistance.  The stop for this M/A is 10,260, a long way up there, so I am lowering it to 10,230, above the shelf of resistance..
I am holding 5% SDS.

5/26 2:35

I sold 2.5% SDS at 35.06.
I thought that I would be able to catch an uptick from 10,092 to re-establish shorts near the highs. Maybe not.  So, the trade is to buy 2.5% SDS when DJI < 10,050 or > 10,145.

5/26 2:20

Market appears to be coiling here.  Selling 2.5% SDS at DJI 10,092.  More later.

5/26 2:00

Bonds have come down to their 90-minute M/A.  Bonds turning up from here will be bearish for stocks:

5/26 1:00

I try to communicate what I'm doing and the reasoning behind it.  However, people being people, that sometimes gets filtered by pre-disposed thinking.  I would like to know if my tactics for dealing with a potentially significant short-term low were effectively transmitted.  I1 on 5/25 was 4.35 vs. 5/24 4.54 so there was no decline momentum on 5/25, just a marginal nudge off of the high. 

I will reprint the 5/25 early posts:
I came into 5/25 at only 2% short.
5/25 pre-open

Prices came down to Feb lows and bounced. I sold 1% SDS at 37.40. Coming to important lows invites a snap-back.

5/25 9:50

One more low to complete a 5-wave from yesterday. This COULD be the final wave of the 5-wave from 4/26, which coincides with a re-test of the Feb lows.
This is why I'm taking it easy here, not getting aggressive.

5/25 9:00
If SP futures decline below 1041 I'll short 1% via SDS. Below 1038 another 1%.
Posted by Steve Koteles at 6:02 AM 0 comments
(Note:  they never did so I never shorted on that weakness)

I will reprint the 5/25 11:10 post with DJI at 9880:
I1 got us this far. It does not mean that the market is immune from rally. I took a good profit this morning. I have good reason to believe that the market will give me a very good entry point a few hundred points higher on DJI.
I posted a chart showing that (v) was done or will be done with 1 more low.

That should have been the que to skidoo from any but long-term short positions.
Can I do better?

5/26 11:50

Sold 5% SDS at 35.29 at SPX 230-minute M/A as per 11:20 post:

5/26 11:20

SP futures ABC wave count:

Used this rally to get 10% SDS which is highest since May 7.  Came into yesterday's low only 2%.  Using this short-term decline to SPX 1077 to reduce to 5%.  Average price is 35.30, so decline to SPX 230-min M/A is appropriate place to sell.

5/26 10:50

Nominal new high was a 3-wave.  Orthodox high remains 10164 and the wave count in prior post remains intact as extension of C wave up to this high.

5/26 10:30

SP futures high 1088.50.  85-hour M/A is 1071.50 +1.65%=1089.20.  So far, so good.

5/26 10:20

The basic trading rule that I employ is to trade in the direction of I1 and the 5-minute,380-unit M/A.  When market returns to this M/A a trade is placed.  I keep exposure low waiting for this opportunity.  Regardless of the wave count this basic rule is followed.  The market rallied to it's current point in the evening session yesterday. Today's action is the cash session mirror of 15-hour old activity.
5% SDS was bought at 34.90 and 34.54 based on this rule.

The other 5% was bought at SPX 15-minute, 54-unit M/A near the close which has been eclipsed by this rally.

5/26 10:05

Count for the extended C wave is complete.  Bought 2.5% SDS at 34.54, bringing up to 10%.

Stop is 1.2% beyond the 5-minute, 380-unit M/A.  However market has considerable resistance at 10,200 so stop of 10,230 is in effect. 
SP futures have honored their 85-hour M/A band of 1.65%, which is 1088+.

5/26 10:00

Buying another 2.5% SDS at 10,160

5/25 9:44

Market at critical resistance now. 

5/26 9:30

Currently 7.5% SDS, highest since May 7.  Average 35.55 SDS.  Currently 35.05.
Fish or cut bait time.  I1 declining from here on.  Today is slow decline, tomorrow it accelerates to 6/8.
February lows held, which are part of a head-and-shoulders neckline.  If there is still overhanging supply we will see it here at the 5-minute, 380-unit M/A, which for the DIA is at 101.45.  I bought the last 2.5% SDS at 34.90. 
Stop is at 1089.5 SPX cash, 1088 futures.

5/26 pre-open

The short put on at the close and overnight will remain until the 85-hour SP futures M/A +1.65% is broken to the upside.  This computes currently to 1089.

A break of this M/A will confirm wave 2 is in force and that further upside to at least 10,500 is in the cards.
The following is a 5-minute, 380-unit chart of DIA, the DJI ETF.  It's critical resistance is at 101.45.  Currently it is 101.25.  So it pays to stay short here and let the market confirm that either wave 2 is running or that wave (v) of 1 will extend downward with a slowly accelerating I1.

Tuesday, May 25, 2010

5/25 8:30 pm

Here is the I1 chart with magnified scale so that the double top can be clearly seen.  Today was the second day of the double top.  Tomorrow starts the decline in I1.

This double top with today's value only slightly lower than yesterday's is why I thought that wave 2 might come in today.

5/25 5:47 pm

SP futures extended their C wave but are now a completed ABC.  Bought 2.5% SDS at 34.90.

5/25 Daily Commentary

Came into the day 2% short. 
Before the open I sold 1% at 37.40.  "Coming back to important (February) lows invites a snap-back"
9:50 Bought 1% at 37.01.  This brought me back to 2% short
10:18  We just completed a 5-wave up. Looking to sell back 2% SDS.
10:25 Sold 2% at 37.05.  This left me flat.
11:50 Bought 1% at 36.83
12:45 Posted the count calling for 1 more high
1:36 Stopped out 1% at 36.29
3:20 Bought 5% SDS at 35.88.  This is what I had been waiting for all day. 
3:36 Market indices hit their orthodox highs.  DJI orthodox high at 10,022.
The 11:50 post stated the following:
I1 got us this far. It does not mean that the market is immune from rally. I took a good profit this morning. I have good reason to believe that the market will give me a very good entry point a few hundred points higher on DJI.
I1 double-topped today and yesterday and starts it's actual decline tomorrow.
Currently 5% short via SDS.
Wave count is double-zigzap as posted 12:45.  Current wave chart:

The market rallied up to strong resistance at the 15-minute moving averages:

Came in with a good profit and had 1 losing trade with minimal capital.  Entered short near the close and near the highs for the day.  Trade is underwater in the evening futures session.
Futures count as a simple ABC:

To recap:
Wave 2 is in force, but the market is subdividing as ABC
I1 was in a double-top yesterday and today.  I1 starts declining tomorrow
Market traded up to strong resistance (15-minute M/As)

The critical resistance is above the market (DJI 5-minute, 380-unit M/A) at 10,132.  Futures have their own version of this the SP 85-hour M/A +18 points.  Guess what, the market came up to this today:

5/25 3:50

Market came all the way up to the 15-minute, 54-unit M/A:

5/25 3:35

Went in with 5% SDS on a tight stop DJI 10050.  The advance is so far a series of ABCs.

5/25 3:20

The upward ABC is complete.  Bought 5% SDS at 35.88

5/25 1:40

Stop on short position is DJI > 9963.

5/25 12:45

New wave count, same conclusion: 1 more short-term high:

5/25 12:10

Looks like the short-term count is wave iii of c is complete.  If SPX stays above 1056 then another high is due to complete an ABC.

5/25 11:50

Market has ABC'd up from the lows.  Just bought 1% SDS at 36.83

5/25 11:10

The reason for my taking profit this morning is based on the following wave counts:

We are in wave (v) from the 4/26 high.
Now the breakdown of the wave (v) move:

I1 got us this far.  It does not mean that the market is immune from rally.  I took a good profit this morning.  I have good reason to believe that the market will give me a very good entry point a few hundred points higher on DJI. 

5/25 10:25

Sold SDS at 37.05

5/25 10:18

We just completed a 5-wave up.  Looking to sell back 2% SDS.

5/25 10:08

Bought 1% SDS 37.01

5/25 10:00

Sold the 1% just bought 37.22

5/25 9:50

One more low to complete a 5-wave from yesterday.  This COULD be the final wave of the 5-wave from 4/26, which coincides with a re-test of the Feb lows.
This is why I'm taking it easy here, not getting aggressive.
Just bought 1% SDS 37.22

5/25 9:00

If SP futures decline below 1041 I'll short 1% via SDS.  Below 1038 another 1%.

5/25 pre-open

Prices came down to Feb lows and bounced.  I sold 1% SDS at 37.40.  Coming to important lows invites a snap-back.

Monday, May 24, 2010

5/24 Daily Commentary

Today was I1 sell date for decline through 6/8.  Entered this afternoon 2% SDS average 35.16.

Weakness in the final hour carried into the futures evening session.  Would like to expand short beyond 2% on any strength, but right now the SP futures are .75% lower than the close.  (SDS is up 1.5% from it's close).  This is a breakdown from the futures rectangle over the last 2 days:
The obvious place to short is a bounce back to 1070, which I will try to do.
Wave (iv) appears complete.  Wave (v) of 1 of (3) is in progress.

Reposting commentary on current software project to identify high-probability extended trades using time at elevated or depressed levels for I1 and sub-components:
I've been working on a systematic method of determining which I1 moves will yield strong trends.  I have noticed that I1 components and indeed the I1 itself at times have stayed in elevated or depressed levels for periods longer than the average "cycle" time. By focusing on this time factor and using multiple components a significant sample of time-based signals can yield results that I can stake my capital on. When multiple signals are firing then the odds go up.
The software uses I1 and some of it's components individually with historical thresholds. I have isolated 95% probability signals for components if they can remain above/below threshold over time. That is, if a component can remain above a bullish threshold for a prolonged period or below a bearish threshold for a prolonged period then this generates an individual signal. The requirement is that there must be 95% correlation win/loss with the historical data in order for a component to be included within the signal generator.

According to my preliminary results we are in such a bearish period until July 8.

5/24 3:45

Bought 1% SDS at 35.24

5/24 3:20

Took an extremely small short position.  The I1 almost double-tops today and tomorrow.  There is still possibility of upside breakout.  Wave (iv) can be price or time.  It is apparently chewing up time.\
The 30-minute M/A is critical:

5/24 2:50

Bought 1% SDS at 35.09. 

5/24 2:30

Will go short at the close or SPX below 1082.

5/24 2:00

Will buy 2.5% SDS at SPX below 1082.70 and 1082.20.

5/24 1:25

I'm not able to post any comments today.  I'll get it resolved and answer later. 

5/24 12:10

OK, so we have upside breakout.  Measurement is to SPX 1100+.  This is just chart measurement.  Chart formations are notoriously unreliable since the entire world started using them.  I will start shorting based on I1 time and the DJI 5-minute, 380-unit M/A.

5/24 10:00

Stock market still struggling within a rectangle. All of the waves within it are, of course, ABCs.   I think upside breakout to give hope to the bulls.  Since I don't want to short before late, late afternoon I will be dragged into a short on SPX 1069 cash, 1067 futures.. 

To continue the pre-open post, I have noticed that I1 components and indeed the I1 itself at times have stayed in elevated or depressed levels for periods longer than the average "cycle" time.  By focusing on this time factor and using multiple components a significant sample of time-based signals can yield results that I can stake my capital on.  When multiple signals are firing then the odds go up.
According to my preliminary results we are in such a bearish period until July 8.

5/24 pre-open

Stocks down overnight, but holding at 220-day M/A.  I1 top day today, so expecting a pop.  Target DJI 10,300.
I expect market to hold these levels today, but SP futures 1068 must hold.

I've been working on a systematic method of determining which I1 moves will yield strong trends.  The software uses I1 and some of it's components individually with historical thresholds.   I have isolated 95% probability signals for components if they can remain above/below threshold over time.  That is, if a component can remain above a bullish threshold for a prolonged period or below a bearish threshold for a prolonged period then this generates an individual signal.  The requirement is that there must be 95% correlation with the historical data in order for a component to be included within the signal generator.  It looks promising but will require another week's work.  Hopefully the Weekly Commentary...

Friday, May 21, 2010

5/21 Weekly Commentary

Another good week.  Scaled down stock shorts to 2.5%-5% and turned out very well,  made good money on short silver and long bonds.  They were all related so it's like going to a party and kissing sisters.  They all taste similar to each other.  This uniformity of markets is unusual and not to be expected once the world deflates the extraordinary stimulus created by desperate pols.  This deflation will occur naturally in the markets, so the lower the stock market goes the less it will correlate with commodities, currencies, and bonds.  Expect this and ease this correlation out of trading strategies that you may employ.
I expect the rally started Friday to continue Monday.  In the afternoon I intend to practice scale-up shorting, hoping that the market gets all the way to the 5-minute, 380-unit M/A.  By the afternoon this should decline to the 10,270 area.  This analysis is consistent both with the I1 peak at the close Monday, but with the wave count. 
I have been posting wave counts more assiduously in the past few days.  There is a reason for this, a good one, which is that we are in wave (v) from the 4/26 high.  While I expect stocks to decline into the 6/8 I1 low the behavior after it violates the flash crash low 9872 will be spasmodic, perhaps chaotic.  It will be difficult to maintain inner peace unless one also maintains sharp focus.  This downleg of the I1 may encompass a sharp rally correcting the decline from 4/26 BEFORE going on to new low 6/8.  This is because we are in wave iv of (v), in other words what appears to be the late stages.  Wave (v) could extend, in which case the I1 will mirror the steady decline of the stock market into the 6/8 low.  An accurate count will allow me to determine if an extension is in the cards.  The rally off of the wave (v) low should be striking if and when it comes and any error in timing will be magnified.  So, just bear with me as I post the wave count charts one more time:

Notice the 220-day M/A in the first chart.  Bouncing off of this should continue through Monday.

I have a confession.  I lost money for 10 years and broke even for 3 before turning it around.  I've recouped more than I lost so I count myself fortunate. 
The point I am trying to make is that the gains look easy but, believe me, they are not.  Those of you contemplating a life as a trader should examine the probabilities.  90% lose, simple as that.  I continued on because I'm, well, soft in the head.
I have made a commitment to myself to continue this blog for another year.  I ask that those using this blog to guide their decisions follow conservative money management.  I use very conservative capital allocations because I want to impress upon readers the importance of keeping it small and generating gains consistently with very small drawdowns.  I also use conservative allocations because my capital base is larger than it was a few years ago.  I know how it is when trading with capital less than $50,000.  There is a strong tendency to plunge.  Let's look at it mathematically.  With $50,000 and a 15% allocation to double-short ETFs the amount of stock controlled is $15,000.  A 5% return on a trade is $750. To an inexperienced trader this may not seem worth the effort.  Believe me, it is.  Compounding works wonders, but compounding is utterly defeated by a single large drawdown.
So, for my purposes a 5% allocation is all that I warrant for my personal accounts on a longer-term trade and a 15% allocation is all that I warrant on a short-term trade (in the direction of I1).  Those without deep pockets can double those allocations safely and, rather than plunge, that is what I would recommend.  I am happy to provide the results of my research and experience.  I ask only that you allow compounding to work by not going "all in".
My trading history over the past several years is to tread water 26 weeks out of the year and make good money the remaining 26. However, those 26 generate an excellent return for the year. To see how excellent the Trading History page is an Excel spreadsheet. Those that have followed the blog from the beginning pretty much know how it goes.

5/21 3:55

Yippee,  I don't have to go short over the weekend.  Will plan on Monday afternoon I1 peak to plunder the longs.

5/21 3:18

SPX broke 1071, but I did not sell because Nasdaq Comp just completed a pretty 3-wave.  I'll let a rally build and then short if the low is broken.

5/21 2:30

Market still marking time distributing stock to buyers. We should have another stab in the dark upward.  We should have a decent bounce off of the 220-day:

If SPX breaks 1072 then I will have to short 2%.

The reform bill puts to lie that you can buy ALL the politicians in Washington.  Wall Street pushes legions of lobbyists in the beltway and got some of the hard bark removed.  It will be easy, for example, Goldman Sachs to re-establish itself as an investment bank instead of a (laughable) commercial bank as it is now.  That will side-step most of the annoyance.  The requirement to put as many derivatives as possible through clearinghouses will make some of the products economically unviable (either through disclosing actual bid/ask or by adding the clearing cost into the product package).  So, the world will shrink that way.  Also, banks will have a harder time maintaining a derivatives profit center and some will stop trying.  The world will shrink that way, too.   Most of the really clever cheats that Goldman engages in will go on as before.  The beltway does not have the background to understand Goldman's business model(s).  However, the banks are not as gifted with talent as Goldman and Morgan and will find it harder to wiggle out of the briar patch.  Good, greed and stupidity do not flatter each other.  The banks chased after the investment houses and got taken to the cleaners.  We transferred their debt to our collective balance sheet and did not go after the luscious past bonuses paid (or even the current ones during the crisis).   This kind of stupid shark I don't need.

5/21 1:45

The stock market is in wave (iv) which can correct in price or time.  Although it appears that a single ABC upward correction is complete from this morning's lows, the upward moves are not impulsive, but are themselves ABCs.  This allows for a final ABC rally to complete (iv).  As it stands now the move would not be enough in price or time to qualify as a completed correction of the entire wave (iii):

5/21 12:00

Put in an order to short via SDS purchase 2% of capital at DJI 10,235.  Will follow on at higher price near the 5-minute, 380-unit M/A.

5/21 11:30

I posted the wave counts on charts in the pre-open post.  The longer view into which they belong is that we are in wave (v) of 1 of (3) as depicted below:

5/21 10:00

Wave iii low is in.  Wave iv to about 10,270 DJI.


The wave iii bottom is probably in or with 1 more low.  I am going to wait for Monday for wave iv to correct the decline from SPX 1150 on the 18th.

5/21 9:37

DJI 9855 should be the bottom of iii and the beginning of a 1-day bounce.  The financial reform bill news is out and is being discounted.  The cozy cake for financial firms is over.  They sealed their own political future when they allowed their shark suits to parade in public.

5/21 pre-open

Stock market is in final wave of iii down, will probably finish it by testing 5/6 lows.  1-day rally will be wave iv in time for Monday afternoon's I1 top.

The waves within wave iii are: