I was thinking on the ride home today that this could be quite possibly the best setup we've seen in at least six months. In many places, we have a choppy, overlapping potential ending diagonal to end a move that screams "short covering rally". It has brought all the indices into resistance from the trendlines that have controlled the entire bear. While the 25 trading days straight up could be the start of a longer correction of the whole bear to date, the collapse in put-call since November argues that the entire half-year of chop is just one big irregular flat. It would also explain what looked to be three waves down into the March low. This structure can be seen in a great many stocks and indices, including the emerging markets. In places like India, I see three waves down to November, then three waves back up, which could be setting up a bull-killer deflationary impulse.
While I was reluctant to be very short following the November lows, knowing that a multi-month correction was a high probability, we now have a corrective looking structure off those lows that has cleared a bunch of short profits and worked off the oversold from the November bottom.
This leg could very well extend higher, but even if it does, we may get a decent pullback here to the base of the wedge first. Risk/reward is excellent; the stops are very well defined.
It seems like the best risk/reward setup of the past several months, right at this very moment. What do you think?
`BC |
