Every so often I proclaim that "THIS" is the most important update of the year. It's about that time again. If you missed it, yesterday's opening salvo is here: Preview: Weekend Update. DJI Daily The big picture is most clearly set out on this DJI Daily chart by way of multiple pattern recognition set-ups, all pointing to an imminent downward thrust taking out the March 23rd market lows: Shown above are the first two alternating legs of an Elliott Wave five wave structure (numbers 1 & 2). Also shown is a pending Stochastic Sell needing only one or at most two down days to trigger. Both patterns are coming together right at the termination of an upward Fibonacci 50% retracement (a-b-c) of a huge first leg down. Throw in the coronavirus pandemic of which so much has been said and so little known, 20% unemployment, and at the snap of congressional fingers a $4 trillion dollar (and likely more to come) deficit. A persuasive case is being made for another 30% or more decline. Third waves are more powerful than first waves, suggesting that the prior 30% decline in four weeks will be surpassed in magnitude and/or less time by what is coming next. Special Situation Bet Yesterday I showed how a 3¢ put rose to over $9.00 in a matter of weeks, taken theoretically at the cusp of a 30% in four weeks market decline. The analysis above suggests a similar opportunity presenting itself in the days ahead. There is enough bad news simmering around the globe, enough instability in social mood, enough pattern recognition set-ups, to support that third wave down in maket indices. Under normal circumstances buying the "next month" expiration (May-Jun) and just out of the money puts would be the strategic bearish position. However in this case I want to throw out there two more extreme ideas that will be a play on math more than any realistic expectation of the puts ever being in the money...or close to it. This is not an official system trade, we certainly have enough of those already with likely more to come this next week. This is truly a special situation, "just in case" I am right about the next few weeks. Two alternatives, one just a little crazier than the other: SPY July 17th $140P = $0.44 SPY July 17th $100P = $0.09 Disclosure: Near the close Friday I bought he SPY July 17th $100P for an average cost of 7.5¢. It closed at 9¢, taking the position already up by 20%. How easy was that?
