Beware the Ides of March

Market Action:
Wednesday’s opening was a little ragged as traders couldn’t decide what to do at first.  As the morning wore on, sellers came in to push the Dow down about 135 points.  From there, a rather spirited rally ensued pushing the Dow up about 57 on the day at the close.  That meant that the rally carried nearly 200 points from the lows of the day to the close.

Opinion/Analysis:
This eventuality happened to be mentioned in our post from Tuesday evening.  With such a strong down move into mid-day Wednesday and with options expiration due on Friday and with such a strong down move for the last month, the Dow seemed ready to rally.

The latest down move which ended on Wednesday around mid-day was the beginning of a series of down moves, all of which will have corrective waves built into them.  Today’s low near 11,940 is the bottom of a move that started on Monday near the close when the Dow traded near 12,350 indicating about a 410 point drop.  Given Wednesday’s rally moved up about 200 points the market has corrected about half of the up move so far.  

The one standard is that any surprises will occur to the downside.  With that in mind, we can try to fine tune the possible moves until this current corrective up move is done.  Going back to the first comment in this paragraph, the move might be done now.  More likely is that the next move will be down and tomorrow’s PPI could drive that move.  Then we should have a rally that pushes the Dow up near 12,200 at which time we should see another drop.

With the pattern the market is in, that drop should be a powerful move, something that Elliott wavers call third of third, the most powerful move in the sequence.  Guessing how far that move would go is like this:  Start with the first part of this latest down move, that being the 410 points from Monday to mid-day Wednesday.  A minimum move would be 410 points down from the 12,200 we talked about in the last paragraph but that is our guess for the high in the next few days.  The down move would need to be measured from the top of the move, whatever it is.  

For our example, we would look at 12,200 and subtract 410 points getting us down to around 11,800.  This is the Minimum move in the sequence and more likely it would be a Fibonacci multiple of 1.618 times 410 points or about 665 points.  Subtracting the 665 from our guess of 12,200 would get the Dow down to around 11,550 or so.  Stay tuned.

Our Moves:
As we were able to see the lows of the day mostly over lunch, work didn’t get in our way.  With our notion that the market might stage a Wednesday turnaround during this options expiration and with good profits in our puts, we traded out of our QQQRR puts.  Granted, this was a small trade but this kind of trade, the kind with 40% profits, can make a month.  We anticipate putting this trade back on later this week, probably Friday but we won’t know until the market makes its move.  

Dow Industrials:  12,133.40  +57.44
VIX: 17.27
HUI:  320.56
QQQQ:  42.99
QQQRR: 1.89 bid  (days range 1.95 to 2.55, we are out at 2.45)
RYVNX:   17.66
RYAIX:  21.96
RYCWX:  37.66
TLT:  89.88
BEGBX:  13.91