Trump spoke today – following Barack Obama’s exit speech last night.
Nov 2016 – Election – market drops and then reverses.
Early December Fed Decision to Raise Interest Rates with outlook to raise more in 2017 – the rally stops and reverses – forming a complex 4th wave consisting of first a triangle and then multiple fakeout rallies followed by a plunge into end of the year.
Dec 31, 2016 – New Year’s Eve – year-end selling: market drops due to tax selling to conclude a 4th wave retrace, and then bounces
Jan 11, 2016 – Trump Opening Speech – Market instantly drops 10+ points into 2255ES and then reverses but then drops again into a buyable B-wave low.
The speed of the drop was quite fast today and spooked us out. But I correctly re-entered right at the bottom – at 2257-2258ES and was able to pick up the SPY calls cheaper. I really should have bought more, but staying conservative for now since I’m still holding a portion off the SPY calls that we entered at 2240ES as well as a few other positions for members.
What you see at the top right is one of maybe about a dozen diagrams I finally put together. This one’s an out-of-the-money call option where the strike price of the call is higher than where the market is trading. These out-of-the-money (OTM) calls are cheaper but also offer a greater percentage return — IF timing is right for a large directional move.
Today at the bottom of the Trump announcement, we used OTM calls entering at $0.77, currently over $1.10 — so from a percentage perspective, this percentage is close to 50%.
If you look at calls with a lower strike price, the percentage change will be smaller. However, note that OTM calls lose time value a lot quicker than ITM calls so timing for these is crucial.
I took thiss screenshot during the day. The market closed over 2270ES.
After failing a breakkout attempt at the top on January 6 at 2276 ES, we pulled back in an A-B-C pattern – with each A, B, and C itself divided into a-b-c.
The pattern on Jan 10 – actually formed what appeared to be an A-B Mountain:
Usually this A-B Mountain is a consolidation day and when it appears, the baseline of it should be buyable.
Today provided an exception where the baseline was pierced with the Trump announcement, but was ultimately reversed by end of day.
I should reiterate the news events forming lows according to daily chart above:
Note the Nov 11 election low
Note the Dec 12 or so Fed interest rate announcement halting the rally.
Note the Dec 31 wave 4 completion year-end selling.
Note the Jan 11 Trump speech
On the daily chart, a wave iv appeared at New Year’s Eve year-end selling.
While the structure was in place for a 3rd wave rally on January 6 – it turns out it failed.
On the daily chart, if we concluded a 4th wave on New Year’s Eve, and that top on January 6 was a wave 1 top @ 2276ES and today’s low on Jan 11 at 2255ES was wave 2 bottom – then this is a potential set up for extensions – especially when wave 1 does not actually complete 5 waves — which in this case it stopped at 2276ES.
So in a way, I see the failure to follow through at 2276 in this particular 5th wave position up to actually be overall more bullish.
At the close, we went towards 1375 TF.
The Russell gave signs of a wave I followed by a wave II drop on the Trump announcement.
Once I saw the pattern structure form on a micro level, it gave some confidence to re-enter longs that I temporarily exited.
It wasn’t just the wave I pattern alone – it was also the conclusion of what appears to be an A-B-C-D-E barrier triangle that ended on January 10 at 1351.
In chat, I mentioned that support @1350 must hold – so far it tested just right at 1351 and then reversed with this I-II wave structure.
In chat, I mentioned:
Looks like IWM stick saved right at the Russell 1350 level mentioned, now over our entry abovve 1370. Possible a-b-c-d-e barrier triangle with d at 1387 and e at 1351. Expecting that to conclude the month long consolidation in IWM.
While it’s very possible, this view could be off, I think the pattern makes more sense given the bigger picture context.
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