Wednesday, October 15, 2014

Expanding Pattern Now At An Extreme - Short Term Cover Point

If you followed my posts the last couple weeks or took advantage of an option play to profit on the last several days of decline, then my suggestion at this point is that price has now declined to the declining speed line of the expanding pattern boundary and has occurred with a sizable gap.  There is no bullish divergence present at this point to suggest the decline has bottomed, however, I would suggest that this may be a quality point to cover part of a short position or put option, depending on time to expiration, etc.

Click on Chart to Enlarge

So again, I am not saying that today is a price bottom and I am not suggesting going long here.  I am saying that when the crowd is panicking and prices are making an extreme, those are the most contrarian points at which to act opposite the crowd.  In this case that means to cover or exit as they are capitulating.

In this specific case, I believe any rebound will be another shorting opportunity, but I will obviously be better informed as more price and time action unfold.  If a major decline is infolding, I don't expect any rebound to go back to the "d" wave high.  So if a rebound occurs and gives a sell type signal below that level, then I would suggest to short/sell.

For now a sell and hold strategy may be rewarded, but I have a feeling from years of close market observation that the short term downside is likely mostly done.  I could always be wrong.  and that is why I typically stress using a trailing type stop mechanism on part of positions that have major price potential.  I think that would be advisable here, but for options you may not have that luxury due to time decay.

Let me know if you have any questions regarding how to navigate here.


No comments:

Post a Comment