5 Waves Down In The Qs?

The market action today was awful (for the bulls) particularly in the Dow and the SP500. The Qs were not far behind but the selling was not quite as severe as it could have been given the beating that the SP500 took. One thing that stands out to me is that the Qs could be completing a 5th wave down now. Notice how wave 4 above stopped exactly on the parallel channel line to waves 1 and 3. Also, notice how waves 2 and 4 have a different character. Wave 2, a zizzag looks almost like a flat, while wave 4 was sharp and deep. These differences seem to fit the guideline of alternation between waves 2 and 4. And finally, notice how the positive divergence in the MACD continues to develop.

I think wave (A) down should finish tomorrow approaching, if not hitting, the 200dema around 41.20. I may have been premature in calling the bottom of wave (A) on 1/29. We don't have a limit on how long wave 5 of (A) can be since wave 1 is the shortest wave, but we would not expect it to be longer than wave 3. Going below 39.96 would make wave 5 longer than 3 and raise the odds that wave (C) is underway, or that we are in wave [3] of 3 down of (A).

Another reason to suspect that the latter is not the case is that the McClellan Oscillator did not make new lows today, which is another positive divergence. It is also a rare occurrence when markets do not respect support at the 200dema, so at least some sort of bounce should materialize in the next couple of days. For that reason, I still think it is inadvisable to add new short positions at the present time.

If the above analysis is correct, we would expect a 3 wave bounce in wave (B) up toward the 50dema, but at least to the 20 to 26 demas, followed by wave (C) down. Wave (C) down should provide the best short term shorting opportunities.

Presently, I am short using the SDD and the SEF, as well as short AMZN, AAPL, PCLN, RIMM and GME. This weeks rally merely served to create bear flags in these stocks and many others. I am close to being stopped out of my OIL position. I remain long several positions that have done well and which I continue to expect will do well in wave c up of the bear market rally. Thus, overall my account is suffering a drawdown at present, though not too severe due to the short positions.

In retrospect, I should have avoided some short term longs in January and bailed on the long Qs position sooner, but if we could make money looking in the rear view mirror, anyone could do it.