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Tuesday, October 13, 2009

VIX Thoughts to Accompany a Few Count Options

Many of us EW bloggers are charting this rally to

a) understand how the count is unfolding to find trading opportunities
b) understand the larger wave structure as it will have *severe* long term consequences for investors, not just traders.

What I am getting at, of course, is finding the top of Primary 2 / start of Primary 3.

So I have been called a P3 "cheerleader" along with several other bloggers. And honestly, I don't mind that label a bit. Why?

Because as this rally (P2) extends, it is suckering in the small retail LTBH investors, the mom and pops, who will buy at the top and become the bagholders

I am very skeptical of claims from economists that "we have turned the corner, recession is over!" (see binve's Long Term View)

I am very skeptical of upgrades from Wall Street analysts and brokers (see Sometimes the Truest Points are Made Through Humor)

So maybe you believe in the larger wave structure that many of us believe we are in (Large Cycle Degree C Wave down from the 2007 top, and nearing the end of Primary 2) and maybe you don't. But I would ask you, barring that, do you honestly believe the stock market and the economy has made a V-shaped recovery? And even if you think it has, after a 60% rally in 8 months, do you think the risk is now to the upside or downside?

I posted several count options last night (EOD Count Oct 12 with a Bunch of Charts and Count Options) that shows the rally from a bullish perspective (more upside rally running out to December) or from a bearish perspective (rally is almost done). However, either way, I think the upside to be gained is trivial in comparison to the downside risk.

And so focusing on the downside risk for a minute, there are 3 counts from analysts I respect very much that show that P2 could end on the next small rally up, and that the next couple of days have a little more upside to complete the run:

1) GoodVibe - Read this post: Here comes the sun - Charts that speak the truth!
2) Todd S. - Read this post: Intel Reaction Warrants Bullish Wave Count; October 13, 2009
3) Daneric - Read this post: Another Count I Like

And so while these are not my preferred count, I definitely concede that they are technically viable (and are actually some of my alternate counts). And I like I was pointing out in last nights post, many of the indicators are saying that the top could be near, and some (like the daily TRIN) are showing some very important and relevant divergences. Breadth is also decreasing. So the my take on the indicators say "maybe and/or soon!".

However, I was reviewing my VIX count and this one has a slightly different story to tell.

My long term VIX count and support line analysis shows that we are sitting right on top of a decades long S/R line. Probably the most important one on the long term chart. And by my count of the VIX correction, it is saying it *could* be done in the next couple of days, on one more sharp stab down.

On the long term chart, notice the support/resistance fight denoted by the blue arrows and the blue boxes. Also notice the large gaps just around this line of action during the large bull/bear fights. What is *very* interesting is that this correction has bottomed smack dab on that line. Coincidence? ... Not in my book.

So if this rally does extend this week, and *especially* if it gains enough momentum to overthrow the upper trend line on the 7-month long wedge formation, and we see a sharp reversal in the VIX with an impulsive structure up, then we might just have a P2 end.

Just something that everybody should keep on the radar, traders and investors alike.
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