I expected market destruction today as my primary wave count has us thrusting from a 4th wave triangle to new lows. Selling should be fast and fierce, but today we had the bulls in control most of the day except for the first hour and last 30 minutes. 81% of NYSE volume was down on the day which is very weak, but not as weak as I'd expect. This should be a 3rd wave of a 5th wave thrust, so breadth should be closer 90% down. The action today elevates the possibility of an ending diagonal unfolding right now. We should know if this is possible by the end of tomorrow, or Wednesday. If the ending diagonal is unfolding then we should be in a significant rally phase the rest of the week possibly taking the S&P close to the 1000 area. Once that rally endes, it will rollover again to a slight new low around 800 or just below it before it undergoes a fierce multi-month rally.
Due to the choppiness and uncertainty, I have protection for my positions. I'm currently in SDS which is an ETF that double shorts the S&P 500, and I also bought January call options on the SPY which is an ETF that's single long the S&P. Any significant rallying in the S&P will allow me to close my call options at a nice profit, just as any serious declines will allow me to close short positions. I'm employing this strategy because it seems that the only options I see for the market are that a sharp rally and quick reversal will happen, or a sharp decline and quick reversal will happen. So why not position yourself to profit from both direction moves while protecting yourself at the same time?
The bottom line is that if the ending diagonal is unfolding then the market should rally significantly very soon, probably tomorrow. And ultimately the market will only make slight new lows on the year. But if the market keeps selling off then we are thrusting from a triangle and the S&P should get to at least 700 by next week!
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