In the the previous post, we were at 2373 ES – I suggested that we should have a shot at 2380 ES before pulling back. Quoting:
If it’s not a fourth way, it’s possible that drop was a wave 2 drop instead – if so, we might touch 2380 before pulling back.
Well, looks like we did indeed go towards 2380 ES – that’s where we closed on Friday. What I didn’t expect was that we would reach all the way to 2393 before pulling back.
Perhaps more impressive, was the prediction from the Panic into Good Friday Weekend – Case for Reversal – where I specifically mapped on the major twists and turns that we would likely see. I’ll repeat them again here for review.
In the past – 2 weeks ago during the Good Friday 3 day weekend, I predicted that we were at a B-wave low at around 2325-27 ES — and that a potential C-wave should drive us above 2374 ES.
Well, we are now at 2380 ES — above that 2374 ES level — which is the top of the A wave.
In that post, I also posted this diagram – specifically referencing the major twists and turns:
Diagram Matching (Match with daily S&P chart above)
pink a = April 5 high at 2373 ES
(a) = April 7 @ 2338
(b) = April 10 @ 2362
pink b = April 13 @ 2323
Compare this diagram to what actually happened in the daily S&P chart above.
The diagram was fairly correct! We were at the pink b-wave low at 2323 ES at that time.
What happened next was we moved up towards 2346 ES (I was predicting 2350 ES – so off a few points here) — then we pulled back to 2330 ES (I expected a pullback to just below 2340 ES) – so was off here.
And then from there, we went up – according to the diagram.
If we already had pink a and pink b — then what’s next?
What’s next is a pink c – that goes at least above the the top of pink a – which was around 2374 ES.
I was hesitant that we would be able to make it there, because we had potential resistance at the 2361 ES mark — but I wanted to give it at least a day or two to give it a shot.
That’s why we put on a bull put spread trade over that weekend on the SPY for a max profit of $1,200.
We were looking for a rally attempt over 2360ES — and if that failed, we would exit.
What ended up happening – was we gapped over 2360 and break over that a-wave high of 2374 ES.
We took that opportunity to take profits — and avoided chasing the markets higher for the next few days.
But the guiding rationale for taking this trade – was that diagram above. Once we gapped up – I wasn’t sure if the market would follow through to the upside – or whether we would form a B-wave top and start a C-wave down.
Since we were at around 93% of max profit, we took the money and ran. Of course, in hindsight, if we had held on into Wednesday expiration, we would have realized another $130 or so – but at that point it wasn’t worth the risk.
So what’s next?
See below.
Today’s S&P500 Hourly Chart
Either we topped in a 3rd wave at 2393 ES — or instead of 3 — that’s a B-wave top – completing the A-B-C according to the diagram above.
If that’s the case, then the next week or two could be quite bearish.
Alternatively, if we form 4th wave support, we could be setting up for a rally towards 2400 ES – ideally with a liftoff region in the lower 2370s. Though it’s also possible, the 4th wave support was right where we closed on Friday – around the 2378 ES region.
Keep in mind – we still have not tested the “Gap zone” in the lower 2360 region – normally former resistance becomes support – but we haven’t really tested that support region.
So that’s why at this point, I think it’s key to keep position sizes small – as this could easily go down or up – kind of no man’s land until we get some more clarity – especially with the conflicting Russell and Nasdaq charts below. I have a bias for my upside, but am expecting downside first as it would make the chart “look better” – but it’s not necessary.
Prior S&P500 Hourly Chart
In the previous post, we posted $1,000+ in profits on our bullish trade initiated the previous Friday.
Today’s Russell Hourly Chart
While I was expecting a pullback in the S&P – we only got like barely 10 points there — whereas with the Russell – that dropped 25 points — a very strong move down – testing the gap area – something that we were not able to do with the S&P.
I was expecting some kind of bounce on Friday during the day – but the Russell just did not bounce at all – just went straight down for the entire day in a slow, orderly fashion.
Today’s Nasdaq Hourly Chart
While the Russell dropped all the way down to the gap support region in the above chart, the Nasdaq was making new highs as a result of Amazon’s earnings.
Even the pullback was almost nothing. So we have conflicting signals between Russell and Nasdaq with the S&P in between.
VXX Daily Chart
In addition to the SPY bull put spread mentioned above, we also alerted an awesome short on the VXX — 4 -5 days BEFORE the massive drop in volatility – that big gap that you see on the chart.
Note that this seems or “looks” easy to do – but in reality, it took a lot of guts and patience to short VXX.
Almost everybody was buying the VIX and 3x leveraged ETFs on volatility — buying TVIX was super popular. I had noted in a previous post that we were at elevated levels of volatility – when we were above 16.00 on the VIX hart above — we were entering territory that we hadn’t seen for the past 6 months or so.
After we alerted the short – the VIX started dropping from over 16 towards 14.
Once the news came out that weekend that Korea’s missile failed to launch that Saturday – VIX gapped down towards 12.5 and continued to drift lower.
We were able to capture the entire move pretty much – with our short alert on Monday, April 17 – shown in the diagram above – and the cover after the big gap down.
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