In EW terms last spring's low was the beginning of Wave 3 of an impulse wave from the Oct. 02 low. The third wave is supposedly never the shortest, but not necessarily the longest. It would typically extend to 10,889 on the Dow but could also extend to 12,030. It's gone past the former and not yet reached the latter. So we can't call the Dow perfectly positioned for a correction.
No, the Dow hasn't passed 10,889. I suffered a brief brain malfunction. But it's still not at a typical correction level. Because the Dow really likes to follow the Elliott road map I would bet on the 10,889 top. But I wouldn't trade it until I saw exhaustion and reversal in the chart.
I have noticed that the confluence of a .382 from a large swing and a .618 from a smaller swing (the chart I posted on page 1 of this thread) can give you some powerful moves....but I really don't look at fibs very much anymore.
Quite so. In either case the initial wave, whether (1) or (A), can be an impulse (5-wave) or also, I think, a "leading diagonal," a different kind of 5-stage wave. In fact if the ABC count turned out to be correct, we might have to abandon the idea that the bull market is alive and well and merely correcting. In any event momentum in the Dow is too strong for anyone to be shorting it.
David Hightower once proposed a clever option strategy for making an inexpensive test of a possible top. His idea was to buy ATM calls that would benefit from any continuing advance. At the same time he would buy 4 times as many far OTM puts. In the event of a genuine correction the puts would generate a huge nonlinear payoff while the calls could be liquidated without serious loss. One could also write an ATM put against each set of 4 OTM puts, to inhale some premium and get better theta values.
Umm, it's called a strangle. Neither "clever" nor innovative, but rather a pedestrian way to lose money in a declining volatility environment.
Hi vallyvintner, Can you post a link to David's thread regarding his options strategy? Also would somebody expert on options please comment on David's strategy or other options strategy for testing the top or bottom? Thank you