The Waiting

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Last year, I remember so well eagerly watching the Rusell 2000. It had formed a huge head and shoulders pattern. It seemed ready to plunge.

0709-rutsingle

The problem was that it didnt plunge. It held on to that line at 660 forever. Those who piled into shorting the market got hurt, because it pushed right on back up to 750, forming a second shoulder – – truly a deformed creature.

0709-rutdoublehead

Of course, we all know what happened after that. This plunge was fantastic for me, although I kicked myself for not being more aggressive about such an obvious pattern.

Some people think that just because a pattern is obvious, and everyone is watching it, it means that it isn't worth watching. I disagree. I think the challenge is playing the pattern properly, and being patient enough to deal with its machinations. The Russell's cutesy little fake-out last year was a great example, because a lot of people got burned in mid March to mid May as the indexes leaped higher.

Of course, the "obvious" pattern I'm referring to right now is none other than the S&P……

0709-finalSPX

There are a couple of key differences. First of all, the current pattern is much, much smaller than the Russell one. The $RUT pattern was nearly three years big, whereas the current pattern is just about ten weeks. Secondly, the $RUT was truly at a lifetime top, whereas the SPX pattern is on the heels of a pretty big plunge (and partial recovery). So the best I think the bears can expect from this is the very low 800s.

Today was down a little for me, although I made some green from my energy longs. I switched from an energy bull to an energy bear intraday, and we'll see how the last day of this week pans out with that disposition. I've got a lot of good ideas waiting in the wings, but I want to see if we resume the downturn after today's push higher before getting any more aggressive.

Good night!

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