Thursday, November 20, 2008

Thrust From Triangle Underway; Nov 20, 2008

Yesterday's heavy selling pressure and NYSE downside volume at 98% and decliners outpacing advancers by 15-1 tells me that the ending diagonal scenario is a low probability. Ending diagonals are a structure based on a weakening of trend. So I would expect 60%-70% down days with a 2.5-1 decline/advance ratio. Yesterday's strong downside move tells me that we are thrusting from a triangle, or in a 3rd wave decline.

Above is a chart of the triangle scenario which is most likely occurring. My initial S&P target is around the 700 area. Any rallies should be used as opportunities to short or re-short.

Also note that thrusts from triangles are strong and fast, but they are also quickly reversed completely. So what I'm doing is buying call options on the way down to protect myself from getting caught off guard on that big reversal as well trying to profit from it as well.

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