Two Thoughts on $SPX

This breakdown is just what we would want to see to help confirm that Friday’s price action was an ending diagonal “triangle” (here).

Now what can we do. Well, hum.

In the initial portion of today, I see what I think is a fairly well-defined leading diagonal:


And if that’s right, we may have two options.

The first option is that blue 2 is already in, like this:


The disadvantage of this is that it’s not a very convincing blue 2. It could be done, but, we need to make sure the twos are out of the way before getting really excited. And so I can’t yet rule out this, either:


In which case we’re in blue 2 now, and it’s an expanded flat. That would make yesterday a good bull trap, and turn today into a small bear trap, though maybe it doesn’t last very long and we turn down again soon.

So, in either case, Friday was a good candidate for the high, and we’ll have to see how things develop.

Now, this is a pretty good selloff, and it can keep going. My goal is to stay short for a while, at least through “Green 1″—which you can see more fully in the first chart here). But, because of the possibility of the bigger blue 2, I have simply taken some puts off today (about a 3rd). If we keep going down, terrific, if we have another rally, I will buy them back.

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