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Thursday, September 17, 2009

P3 Trading Strategies

I really think things come completely unglued in Primary 3. If you have read my blog you'll know I have pretty much adopted Elliott Wave International's long term counts. Why? Because it makes sense to me. They call for a Supercycle (a) wave of Grandsupercycle IV to retrace back to the previous subwave 4's price territory. This is an accepted Elliott Wave principle that a wave 4 of any degree will retrace, on average, back to the previous subwave 4's price range. I sometimes mark my daily charts and note this very principle when predicting a retrace target. Does it always happen? On the larger scales it tends to yes. And a Grand Supercycle wave is a very large scale.

So what is the previous subwave 4 price territory? Good question!

The 1929 peak was the previous subwave 3 peak. The 1929 top was a Supercycle wave III of Grand Supercycle wave (III) which topped in 2000. So the 1929-1932 crash was the previous subwave 4 price range. What was the DOW at the 1929 peak? Around 400.

So in theory this supercycle (a) wave should retrace to under 400 DOW. Hence Prechter's prediction. Sounds absurd. But no need to argue about that right now. How about we just agree that taking out the 666 lows is within reason?

But I digress. The purpose of this post is to mention what would be the "safest" plays when fear reaches maximum and VIX peaks over triple digits. Will we even get paid in our trading accounts? Will options be honored? Will they disband ultrashorts?

I have thought about this question often and I think the "safest" play in the market is what they did back in 1929. They simply sold the stock short. No fancy options, no fancy swaps or promise notes. No relying on the very bank that you shorted to honor credit swap derivatives on your short on that same bank!

It seems safest to me that you borrow and sell first. Take profits (we hope) up front. It worked in 1929. Its not leveraged but it will do the job. When the carnage is over, you can say, umm ok I'll cover that stock now.

So differing stages of P3 need to be recognized. Off the top play it all. Down the road, when fear is running maximum in that big "third of a third" move you might want to consider safer short plays - like straight up shorting rather than ETF's or even options for the bulk of the fear moves..

All I am saying is "diversify" and don't put all your eggs in one basket which most know not to do anywayI guess.

The safest shorts will probably be the highly liquid tech companies. They will be the last to be bailed out by the government or "banned" from shorting. Not that government bailouts will work. P3 is when they fail.

I will look silly if P3 never comes and doesn't turn out to be the bad-ass mother of all bear waves I have been preaching. But hey if it does, be safe.

I am no expert trader, I just got option approved and will dabble a bit and in some ETF's but I like straight shorting. No decays to worry about.

The commeters on the board are much better at trading than I am. I usualy have no time to daytrade and am more of a swinger anyways.

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