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March 10, 2009

Barrel of Laughs

Well, that was just a barrel of laughs. The charts were telling me some sort of bad news was going to bring a climactic end to the recent sell-off, and instead, Citi gives us some hogwash about having a great quarter, and the market spikes the other way. I suppose my goggles need to be recharged or something! Remember a couple nights ago when I fretted getting caught in a spike that would take away half the handles we just rode down? Oh, say about 40 SPX points or so? This rally was due yesterday, but the market gods decided to spin Monday's session to throw bulls off the scent. Quite a nice job they did. Got some of my money for their efforts.

Anyway, you see now why my trade stop was simply an inability of the market to gap lower on the open. Without such an open, I knew I was wrong. Fortunately, that meant I only took a 16-point hit on this trade, and at half the size of the short I rode down, so the damage was minimal. It now seems the equity market will put in wave 4-of-5 from this point. The primary rule we have from Elliott is that wave 4 cannot overlap wave 1, meaning this move could retrace all the way to SPX 800. I think a more likely turn would be the recent consolidation zone around SPX 750.

stock market graph

A couple of narrow-range consolidation days would vastly increase the likelihood of this advance extending into wave 4. The fact that folks have so quickly jumped back into call options also tells us that the rally... whatever form it takes... will probably be brief:

stock market indicator

At least I got one thing right yesterday by dumping my silver futures. At this point I'm going to just sit on my miners. The total position is rather small, and I suspect the miners will outperform precious metals until the GOLD/XAU ratio reverts to a normal level. I still have not let go of the idea of a final leg down in PMs, and if gold loses its uptrend line, I will not be a stranger to the thought of applying a short position.

gold chart

On a final note, the Sprint trade bore fruit today with a nice 13% pop. It's always a good feeling when a few thousand shares gain 42c. It was just enough to neutralize the hits I took on GDX and SLW!

stock chart

I doubt I will hold my Sprint shares into the wave 5-of-5 move.

So at this point our job becomes a waiting game. Until tomorrow....

 

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