Plotting an OEX Put Position ~ The Risk Averse Alert

Monday, May 25, 2009

Plotting an OEX Put Position

Here's why, late in the trading day Friday (5.22.09), the eye I had toward opening an OEX Put position was turned ahead to Tuesday (5.26.09)...

OEX 5-min

Take a close look at Wednesday's (5.20.09) initial move lower: its short 5th wave ... and then the counter-trend reaction that followed: the relative extent of its recovery.

OEX 5-min

The entire trip down, Wednesday - Thursday, appears notably similar to the initial move lower on Wednesday ... including the relatively short 5th wave ending it.

So, why not look for a similar counter-trend reaction?

OEX 5-min

From Thursday's low observe: a 5-3-5, a-b-c (zig-zag) up ... and a 3-3-5, a-b-c (flat) down.

Are these waves a and b of an a-b-c counter-trend rally "correcting" the S&P 100's decline since Wednesday? Then, wave c [up] (five waves) looks to unfold before another strong bout of selling develops.

Considering prospective similarity to Wednesday's counter-trend rally, OEX 421-424 presents a target area for establishing Put positions.


As you know there's good reason to assume selling is due here. The main question is how much...

The S&P 100 Elliott Wave count you see above is quite compelling, particularly by way the "Rule of Alternation" is demonstrated (a 5-3-5, zig-zag, down ... followed by a 3-3-5, [irregular] flat, up).

In the realm of reasonable possibility the way is open for a strong move lower at this point. It could come in five waves or three. By way of the Dow Industrials the latter appears more likely.

Just how steeply the market might imminently fall remains a mystery. Watch MACD as it approaches its zero line (should it in fact continue trending down). Were a dragged out topping process to develop over the next couple months, we should expect some momentum measures (like MACD) to remain positive.

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