Holy Cow! Did Wall Street hit the panic button today? They sure fooled me on this one, as I didn’t see such a huge sell off coming so soon. I was stuck sitting in cash on this move. Bummer! This changes the game plan completely of course. Yes, the turn date for Monday or Tuesday is still valid, but it looks like it started early.
If you are all ready short… stay! If this caught you by surprise like it did me… pray for a bounce! I was looking for a little bit of selling today, but mainly a flat day before one final move higher. But, at least I wasn’t long the market… man that would be painful.
Ok, moving on…
I see 2 different possibilities for tomorrow. One is… A little more selling in the morning as the late-comers’ sell on the news. Then the big boys should step up and rally the rest of the day. I don’t mean a big rally by any means… only a small up to close the day positive.Two is… The numbers tomorrow isn’t as bad as the market thought (government gets out their erasers), and we gap up a little and rally early on, and sell off into the afternoon. Either way, I’m looking to get short. The consolidation area that formed today was in the 107.25-107.50 spy level. That will be hard to go through, and I might go short there? The next level of resistance is around 108.30-108.35, as should be about as high as I can see the market getting. I’ll definitely be going short there.
Either way it plays out, this would produce a smaller wave 2 up inside a larger wave 3 down. That means that Monday (or possibly Tuesday) would have a smaller wave 3 inside a larger wave 3 coming!
If that happens… look out below! We are going down hard and fast! Wave 3’s are the most powerful waves and when you have one wave 3 inside another wave 3… you’ve got a hurricane coming! Now understand that we might not get a bounce tomorrow? You know how they kept all the bears (and late bulls) from going long during the rally from last March. It was almost straight up with no pullbacks to go long on.
Well, don’t you think they will do the same thing on the way down? Of course they will! Any bounces are going to be small and won’t last long. I’d be shocked to see a 38.2% retrace from today’s sell off. I think we’ll be lucky to get 23.2%.
Regardless of how high the bounce is (if there is one?) I’ll go short tomorrow into next week. I really expect it to be ugly. All of next week should be down, with very little chances of getting short again. We are rolling down on the daily charts now, the weekly charts, and the monthly charts. It’s not looking good for the bulls. We will have some bounces along the way, but I’m expecting selling into March.
What I’m doing is simple… I getting short tomorrow on any bounce higher (with those targets mentioned above in mind). Whether it coming in the morning, (which is possible), or in the evening, I’ll be getting short and holding through all of next week, and maybe into option expiration? It depends on how fast it falls and the key support levels it hits. When it hits heavy support, I’ll go to cash, wait for the bounce, and re-enter short for a continued fall into March.
Some of you might want to ride it out, but I swing trade and will be getting in and out when support levels are tagged. This huge down day certainly has come as a big surprise to me, and to many others too. That’s exactly how they like to play it… catch everyone off guard!
Good Luck Everyone…
Red
