On Sunday, futures popped 25 points at around 2105 — and tooday we closed towards 2130 — that’s 25 points gap plus another 25 points rally — certainly did not expect this level of strength. But once the FBI came out saying the there’s no new information in the emails to go against Clinton, markets clearly indicated that the tide will turn and Clinton will win.
I try to minimize how much I say in chat — especially leading into the election. Though last Friday, I broke silence and pointed out that a potential bottom was in place for Russell – but I just could not officially recommend holding a trade into the election. Enough people have pointed guns to my head telling me not to —but strictly from a pattern perspective, I pointed out that Russell likely bottomed and that a potential trade, if you had to take it, was the IWM short put spread 115/110.
That’s short the 115 put and long the 110 put. Any expiration time in the next two weeks or so would be fine. Turns out that was the right timing despite the market reversal last Friday afternoon.
In the last hour of last Friday, the markets erased all the day’s gains and made it seem like we were on our way towards 2064ES and possibly lower.
The news from the FBI over the weekend pretty much would dictate which way — but what I was seeing was a potential A wave rally and B-wave drop last Friday — setting up for a potential rally. But going into the weekend right before the election — I can’t officially put on a trade as that would be considered irresponsible.
Yet it turns out, we did pop — and the pop has the potential, in my opinion, to sustain as it has in previous blue boxes shown below.
Even today, it looked like the rally had a chance of faltering, but it was not until the last half hour that the market popped to new highs of the day — forming that full green candle closing at the highs — that existed at the beginning of each of the prior rallies.
So as much as I want to hold a bullish trade, I have my hands tied behind my back. We do have an election coming tomorrow night and literally anythig can happen. This rally COULD have a wave 2 violent pullback before 3rd wave up resumes — or, as has happened prior blue box rallies, there just is no wave 2 — and it simply goes straight up.
Which option happens, I can’t be sure of, but there’s a decent chance that history repeats itself — and we get another green candle closing at highs tomorrow — and then get we get the election results –and before we know it, ES will be at 2160+.
My guess is Clinton will win — though after reading lots of articles this weekend about the real possibility of a Trump presidency makes me cautious.
I’d rather miss out than be responsible for managing an event-risk like the elections. We saw what happened last time with Brexit — a more than 100 point swing.
From a pattern perspective, the indices SHOULD have bottomed — but then again, the markets have not followed any pattern for the past 3-4 months. So far, though, it looks like it could be resuming patterns. But damn the elections, if it weren’t for event-risk, would have recommended bullish trades last Friday strictly based on pattern formation. For those who took the cautious recommendation in chat mentioned briefly last Friday, the IWM put spread should be doing well so far.
The labeling in the below chart matches the updated one above — the only difference is instead of stopping at V — we got extensions to the downside and that added another series of 5 waves down just below 2080.
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