Welcome, Readers,
Last week, I spent most of my time traveling. Thankfully, I didn’t
miss much. The market saw increased volatility but ended up closing the week
mostly flat. However, I believe we have finally gained some clarity in the
meantime on the direction the market wishes to take. Attached below is the
daily chart of the IWM. It is the only chart I need for this post as the previously
identified support and resistance levels remain applicable.
You’ll notice on the attached chart that I rearranged my layout.
The oscillators are now on the left-hand side and price is now on the
right-hand side. The three oscillators are in order from top to bottom as the
14-period RSI, the Composite Index, and the 7-period detrended SMA. I have had
some success using the detrended oscillator on longer time horizons and I plan
to continue to do so from here on. The blue circles drawn on each oscillator
indicate the position the oscillators found themselves in a couple of days ago.
The RSI and the Composite index are both recording a failure of the signal just
beneath both moving averages and for the RSI directly underneath the moving
average crossover. This is an extremely bearish signal. I believe we are
beginning the third wave decline and the current wave degree has us attempting
to complete wave iii of (iii) of a larger wave I of (III). If do see the follow
through I am expecting, this decline should take price down to the 197 level before
a corrective bounce in wave II of (III) takes shape. This is where I will look
to heavily short the market. Above the 201 level, there is still a chance for
the alternative purple count from my previous updates to be valid, but the likelihood
of this occurring is decreasing as we move lower in price.
I am currently short three micro M2K futures contracts with
a stop at the high struck at RTH open. I will likely close my short-dated June put
positions at the end of wave (iii) of this larger wave I and look to restrike
after the wave (II) bounce. My update this weekend will lay out the larger
degree picture for this decline assuming we see the follow through that I am
expecting. As usual, take care of yourself, manage your risk, and always keep
learning!
Best,
DW
