Bad News/Good News: Bull Trap Set The bad news us that the first week of January did not result in a market collapse. The good news is that the longer and more drawn out the price patterns to the next major leg down, the more profitable it will be. As has been the case for the past year, the breaking of Key Levels will signal the next leg down, Traders do not want to miss it. Friday's 700 point rally was a bull trap set-up. When it is erased, whether it be Monday-Tuesday-Wednesday, it will be time to add to index puts. Whether we ultimately get that VIX/VXX/UVXY trade is on hold for now, just be sure to be short the market with puts (or inverse ETF's) for what should be a historic 1st quarter. The first chart below shows the DJI rallying up 61.8% of the drop from its all time high on Jan 2, 2022 to its Wave 1 low on Oct 14, 2021. At the same time the DJI has retraced 61.8% of its countertrend Wave 2 from Dec 13, 2021 to Dec 22, 2021. Two different degrees of the same 61.8% Fibonacci retracements, converging right at the DJI close on the first week of January 2023. Although this does not guarantee a market crash from current levels in a Wave 3 down at multiple degrees of trend, it is highly suggestive of same, in fact so suggestive of same that we want to pounce on the breaking of last week's lows (on any index) with out of the money puts and that will be our Trade of Year For 2023. Fibonacci Convergence: January, 2023 DJI While the narrowest blue chip index retraced a Fibonacci 61.8% of its dual declines, the broader indices, SPX, QQQ and IWM are simultaneously retracing identical Fibonacci 38.2% of their respective new leg downs, which all started from countertrend Wave 2 highs in mid-December, 2022. The patterns close to perfect, clean and unanimous in their messaging, that the stock market is on the cusp of a mega move down of historic proportions. In a few months it will all look perfect...in retrospect, but we can't trade in retrospect so we are preparing for new, aggressive trades to the downside on the next break lower. SPX QQQ IWM Coming Up: Trade of The Year, 2023 New put positions on breakdowns below the following price levels any time during last hour of trading. Check website (Premium/PRO) for late breaking new option trades. Non-option alternatives: SH (Inverse S&P 500 ETF- no leverage) ) and/or SQQQ ( Nasdaq 100 inverse 3X Leverage ETF). KEY LEVELS DJI: 32,800 SPX: 3,780 (see chart below) QQQ: 260 IWM: 170 KEY CHART: SPX 120 Minute If you want to just look at one chart, this 120 Minute SPX chart is it. A 100 point decline from Friday's close takes SPX below 3,800 and if it happens in fast market conditions, that's all a trigger you need, especially you are looking to build a short position with Feb or Mar expirations.
