What a difference a week makes. Last weekend's update left off with this: "Conclusion: Keep this last close-up SPX chart in mind come any gap-down Open in the coming days and be ready to jump into options on those leveraged indices." Critical Few Days Ahead A gap down last Monday led to four straight up closes, leaving the bearish case in doubt, but not so much as to convince the charts something other than new lows is on the horizon. As the charts below suggest, prices have gone up about as much as they can while keeping the hard down scenario still front and center. DJI - 120 Minute This remains the most likely set-up for the intermediate term and it is virtually identical for each and every one of the stock indices. There is a minimum 10% downside exposure, but 20% or more is just as likely. It won't all come in the next few weeks, as it will probably get spread out over the rest of the 2nd and into the 3rd quarter of this year. How fast it comes will determine how exponential the option gains. SPY Daily Bars After Monday's red bar, it was four gap-up days for the S&P 500 (SPY), but not far enough to cancel out the bearish pattern and set-up for a move to the mid level 400's. One aggressive view toward playing the next two weeks is to go all in on the short side now, with a stop just above the prior Wave 2 high around 576. That's 20 points of SPY risk to make 100 points, minimum, on the downside. If 576 gets taken out, we will be tempted into buying calls on TSLA, NVDA and possibly SMH. Needless to say, that is not the expected scenario, so let's call it "Plan B" for now. QQQ Hourly This shorter-term (hourly) QQQ pattern is almost identical to SPY above, only there isn't much room at all for it to go higher without cancelling out the deep dive scenario implied by the labeled wave count. The absolute stop is at 495, let's call it 500, i.e., above 500 it is a new bull market for technology stocks...not expected, but not completely out of the picture, either. Day-to-day on the indices. IWM 240 Minute This 4 hour view of IWM gives yet another version of the same pattern we see with DJI, SPY and QQQ: A steep rally/retracement of a previous leg down, pushing up against maximum pain thresholds for the bearish case, but not yet far enough to cancel it out. Whether this retracement is a Wave 4 or a Wave 2, it still looks more like an upward retracement within a major downtrend than anything more bullish. If and when that big picture view changes, we will chart a new course. CONCLUSION The bearish set-ups are stretched to the breaking points, but are not broken yet. Money management should leave most trading accounts only lightly short at this point, not where we want to be if this market turns hard down, so stay tuned daily for updates, as under the right conditions we will be buying more options that will benefit should prices unfold in the direction suggested by the wave counts shown in these charts. GLD Hourly Our target for GLD is the $270's by Jun expiration. If so, that Wave 2 top @ $308 should not be taken out....use $310 as a hard stop. We are looking for about 5X on the GLD Jun puts. Option Tables PRO Service Premium Service
