Seeking A “Fat Pitch”

With the market trying to push higher again, it seems that alt [iv][v] is very much in play right now.  But, that does not change anything from the bigger picture.  You see, while it is certainly possible the market may try to stretch directly to the 4800SPX region from here, I simply see no clear structure that is pointing to that result.  

So, it’s time I remind you that the best traders and investors have one thing in common:  They all wait for their “fat-pitch.”  In other words, they wait until a market or stock presents them with a low-risk, high probability opportunity.  

At this time, I do not believe the SPX offers a low-risk, high probability opportunity to deploy money.  Rather, it seems quite stretched, and I still expect to see a sizeable pullback.  And, the manner in which that pullback takes shape will direct us as to whether we should then be looking to 4800SPX, or the bigger market drop.   And, yes, both are still very much on my radar.

Moreover, I am now going to raise upper support to the 4484-4515SPX region, as you can see on the 5-minute SPX chart.  So, when the market breaks down below that support, we will assess the nature of the decline to make our bigger decision.

In the meantime, I want to take a moment to address a “fat-pitch” that seems to be presenting itself to us.  

We now have a reasonable 5-wave rally off the recent low in TLT, followed by what can be an almost completed a-b-c pullback in wave [2].  Now, I want to be VERY clear.  This is simply a set-up -  a low-risk, high probability set-up.  But, note that does not mean it’s a guaranteed set-up.  In fact, these will fail approximately 30% of the time.  Yet, if it fails, the risk is rather small, as you can choose to set your stops just below the box, or below the start of wave [1].   At the end of the day, you are basically risking about 1-2% on this set up, for the potential to make 20, as our upside targets are 120+.

But, again, I want to stress this is not a “guarantee.”  Rather, I view this as low-risk (1-2% of the position), high probability (70%) potential.  And, with a major catalyst coming out tomorrow, it could cause a bit more volatility in this chart than we normally see.  So, if you would rather wait until the market provides us with an impulsive move through 101.70 (an initial indication that wave [2] is done), or even wait until we see a break out over wave [1], both of those are reasonable paths to take to increase the probabilities that this can follow through to the upside.  Remember, there is no one right way to trade the market.  It is all based upon your own risk profile and comfort levels.

In the meantime, I want to again note that I think patience is the best course of action with regard to the overall market so that we can determine the nature of the next pullback.  I am most interested in the next “fat-pitch” offered by the market, which will either be a multi-hundred point rally to the upside over the fall, or a 1000+ point decline in the coming year.