As noted earlier, what I don’t know here is: “Are we going to get a ‘proper’ 2?” A proper 2 is a retracement, but it’s also possible that we make a 2 much lower, maybe in a diagonal.
For instance, I underestimated the ability for the market to fall in a straight line on Jackson Hole day (and covered maybe too early—not that I should complain about booking profits, but you know what I mean). So, I don’t want to underestimate this move’s potential either.
So, two ideas:
- We keep going down in a straight line (green path). And that wedge doesn’t have to occur there, but can also be lower. If we do fall, and close at the orange trend line, that could be a place where we could gap down, as that is support, and gapping through it is best.
- We have a “proper” 2 (red path). We’re approaching the 61.8% retracement of the advance now, and so if they’re going to do that, maybe it would be here. If we do get that, I would like the green trend line to remain as resistance.
What I have done (for playing this) is I have rolled my puts to lower strikes and a little further out in time for a large credit. If we keep falling, terrific. But if we do get some kind of rally, I can use some of that fresh powder to re-short.
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