S2 Option Trader

[SyndicateTwo]

Listen, I know what it feels like, but you have to understand how the market works to put your mind at ease. Remember, the market moves in waves and in phases. Only about 20% of the time does the market go either parabolic or trend strong in one direction or the other like it is now. If you understand elliotwave and fibonacci, then you'll understand that when you get large protracted moves like this, it usually sets up the end of a major move leading to an even bigger retracement, rather then the setup for a bigger move higher.

Now, that said, what I want you to do is take a daily chart of the Q's. Draw a line connecting the March low last year to the June and Aug swing lows (I think it's those months). Then extend it further into space. Now, you'll notice something that happened this Jan through Feb 8th. The market cratered right out of the gate this new year and broke that rising uptrend. Then, Feb 8th, it found a low, and since, it's been basically parabolic from a low of around $42 to now a high near $49. Okay, fine.

But look at the chart. You or anyone can draw this at freestockcharts.com.

What do you see? Can you scream, RISING WEDGE? It's a classic final 5th wave, kiss of death setup.

Now, when, not if, the Q's do a simple 38% retracement back to about $45ish, TZA should trade back to $9 to $10. A 50% retracement will take TZA all the way up to $13 to $14, maybe higher considering that small caps will probably get obliterated faster than the Nas 100 will.

Swenlin on Decisionpoint points out that the current S&P PE ratio is about 23, very high historically and extremely high considering the economy we're in. 20 is considered overvalued.

However, in a trading market like we're in, not an investing market, many times valuation is not relevant for the short term as many trading firms only look to trade the moves and can care less about valuation. Read this:

From our perch, it is clear that value no longer drives prices. A few months ago we referred to a Bloomberg article on the subject (see http://tinyurl.com/y9usych) wherein Lotus Capital Management LP of New York realized a competitor was beating them to a particular programmed strategy by 3 microseconds day after day, at a cost of about $1000 per day in lost profits. Lotus eventually found a way to shave off five microseconds from the router and two microseconds from the execution server to preserve their advantage. Investing is not a consideration.


If you listen to or watch CNBC all day like I do, you'll hear nearly every day them talking about the utter lack of volume. And actually the volume has been on the large selloff days, indicating clear distribution (large 'smart' money funds dumping into the market on sporatic days to get out of positions and selling them to dumb money new investors).

Just wait.