Our Trade of the week is on track – it is an option spread trade on the SPY that should take advantage of time decay over the weekend. It also has a short volatility component – which I think is worth a shot because we may have completed a 5-wave pattern and even with today’s b-wave drop, volatility levels did not increase:
Fed day was the top of the wave 4 spike.
While the S&P500 and Russell made reasonable b-wave lows – the Nasdaq completely retraced the rally in just 2 red candles — after completely retracing the prior drop from 4430 to 4350.
The last time I remember this kind of wide volatility – is last December 2015 prior to the 3rd wave drop in January 2016. That was a corrective A-B-C wave 2 flat. If we ralley from here towards 4440 — and stop right there – it’s possible that we go straight down. If we do and break below 4350 — then a big drop is on its way.
But for now, let’s see if we even get a pop in that direction first.
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