Plan for Full Support Failure We did really well today with lotto puts, hitting over 2,000% on the OTMs taking near the high of the day betting on new lows - but I want to start this post by stating nothing significant happened for bears today. I've been explaining recently how this sort of reaction to the level we were at would be most common.
There are times when the low is made now. As I write this, we trade on support. In a 2021-esk move, we'd be at the low.
In the statistically most common SPX move, we'd be in the first break the 5500.
In the doom move, we'd be entering into a consistent downtrend that would have shallow bounces, a bigger trappier bounce around 5700 and then enter into a period of serious outright capitulation. The type of action almost never seen in indices. I believe contingent on the preceding action hitting this would be a highly probable event on the break.
If we're in a big bear move then it HAS TO BE the case that the first drop was a leg one of Elliot downtrend or a leg A of a correction.
This leg would have to be either the C leg or the 3 leg. Both of those would be capitulation events - and be headline making crashes. Like mainstream news sort of deals.
These moves would be characterised by consistent and strong selling. Only shallow bounces.
If these things are not happening, then it's not a good idea to be a bear.
If these things are happening, trying to buy the dip might get you nailed.
I'll tell you here and now, if the bear break thesis is correct - lots of people will end up margin called.
They will buy the dip and then think they can average out of it buying more and there will not be deep enough rallies to accommodate this.
They'll progressively pick up bigger and bigger positions. Hope and feel it's all over on the first major bounce and then the worst part of the trend will come.
If the sell off is strong, people should respect the risk of it.
To end on an optimistic note - if we make a low somewhere in the area we traded today that is almost always bullish. I'd certainly be bull bias to a new high and if we break the classic spike out risk I'd be ultra bullish.
I strongly believe the trend for the following couple years will be set in this area. I think that's been foreseeable for years. If the downside risk can be overcome - I think the easy bull markets that followed would surpass the ones we've seen.
Or this could become the worse sell off you've seen in SPX.
It's not a time to be overly cocky. Protect risk and be ready to benefit from any outcome.
Big money is likely to be available within the next 9 months. Next 3 if it's a bear thing.
