[The following first appeared in the May 2011 edition of Expiring Monthly: The Option Traders Journal. I thought I would share it because of the strong positive feedback I received as well as the large number of questions I have recently fielded about hedges.]
After more than two years of a surging bull market that has seen the major stock market indices more than double, it is not surprising that many investors are becoming more concerned about protecting existing profits than finding ways to increase existing account balances.
As someone who makes a living trading options, you would think that finding a way to hedge my portfolio using options ought to be second nature by now. In fact, I have always placed more emphasis on offense than defense, not because I underestimate the importance of risk management, but because I generally find the opportunity cost of portfolio protection to be too high. I am sure this will sound like heresy , but the truth is that I never want to pay the full price for portfolio protection, so my efforts at hedging my portfolio have always emphasized finding the narrowest possible hedge for my needs and limiting the cost of that hedge as much as possible. In a nutshell, my approach is to try to figure out where the best place is to cut the corners and shave the odds, without significantly increasing my exposure. An academic may refer to this as creating a bespoke or customized hedge. I prefer to think in lay terms of cheating the odds. With the above in mind, the balance of this article attempts to explain how I look at constructing custom partial hedges.
Three Approaches to Hedging
First off, I have little interest in a hedge that caps my upside potential. For this reason, I generally steer clear of collars, unless I am going on a vacation and have no intention of watching the markets.
I find the following three types of hedging strategies have the greatest appeal:
1) Disaster Protection Hedge – A hedge that only pays off after a specified draw down threshold, say 10% or 20%, similar to an insurance contract with a large deductible
2) Gap Protection Hedge – Has all the features of a disaster protection hedge, but also includes a cap, with the result that the hedge pays off only in a specified range, such as from a 10% – 20% draw down
3) Proportional Protection Hedge – Instead of using thresholds and caps, proportional protection provides insurance against losses for a fixed percentage of each dollar lost
The common theme in each of the above three hedging strategy approaches is that an investor chooses partial protection rather than full protection, based on an assessment of the extent to which he or she finds losses to be an acceptable risk and at what losses must be hedged in order to preserve trading capital.
In the description of the three types of hedges, I have adopted some terminology normally associated with the insurance industry in order help clarify some important concepts. Specifically, I use the term deductible to describe the portion of a portfolio that is unhedged and thus 100% at risk. As Figure 1 below shows, in the case of a Disaster Protection Hedge, the deductible amount is equal to the first 20% of the losses that are unhedged, before the insurance threshold is triggered. In options parlance, the example in Figure 1 would be equivalent to holding a long position in SPY at 130 and having the position hedged with long SPY 104 puts, as 104 = 130 * 80%.
Figure 1: Disaster Protection Hedges 80% of Portfolio with a 20% Deductible Before Insurance Kicks In (source: VIX and More)
While every investor should think long and hard about being hedged against a disastrous fall in stocks, such as the experience in 2008, in reality a 100-year flood does not happen very often and can be an expensive hedge to maintain on a daily basis. For this reason, I like the idea of what I call a Gap Protection Hedge. As shown in Figure 2 below, an investor might think that it is unlikely stocks will decline 20% or more, so he or she might prefer to remain unprotected for a 10% drop (i.e., a 10% deductible), yet be hedged dollar for dollar for any loss from 10% up to 20%. The maximum benefit of this hedge is capped at 20%, so once losses begin to exceed 20%, the investor is fully exposed to any incremental losses. In the options world, this type of protection would be similar to holding a long position in SPY at 130, with a hedge consisting of long SPY 117 puts and an equal amount of short SPY 104 puts.
Figure 2: Gap Protection Hedges Only for a Specified Range, Here from 10% to 20% (10% Deductible, 20% Cap) (source: VIX and More)
While I find it helpful to think about hedged in terms of deductible thresholds and maximum benefits caps, proportional protection has the benefit of simplicity. In insurance terms, this is similar in some respects to a co-pay. As illustrated in Figure 3 below, there is no deductible or cap with proportional protection and the insurance coverage begins with the first dollar lost. This example shows how 50% proportional protection looks in graphical form. Here a 20% drop in the stock market only translates into a 10% loss due to the partial offset of the hedge. In the example below, the options equivalent for this strategy would be a position of 1000 shares of SPY that are hedged by 5 at-the-money puts. Of course, as the contract multiplier for SPY options is 100 shares, one can fully hedge 1000 shares with 10 puts, meaning that 5 puts would represent a 50% hedge.
Figure 3: Proportional Protection Begins Immediately, But Only Covers a Percentage of Losses (Think 50% Co-Pay) (source: VIX and More)
Combining Multiple Hedging Approaches
While some investors might be happy sticking to one of the three type of partial hedging strategies mentioned above, the real fun begins when you consider these hedges as building blocks which allow an investor to design custom hedges.
For example, let us assume one is comfortable with accepting the first 10% draw down as a cost of doing business and is willing to remain unhedged for the first 10% of portfolio losses. At some point, an investor will likely want a hedge to begin to offset some portion of incremental losses, yet might still think protection is too expensive to warrant being fully covered at a pullback of 10% or 20%. This investor might also think that stocks are unlikely to fall more than 30%, yet may not want his or her portfolio to suffer losses in excess of 20%.
One way to structure a hedge that meets all these requirements would be to buy gap protection for stock market losses from 10% to 20%, have proportional protection of 50% to cover losses from 20% to 30% and rely on disaster insurance in the event losses exceed 30%. Here the total maximum loss is 20% (the first 10% and 50% of the next 20%) and the hedge is structured in such a way that the investor pays nothing for the most expensive insurance (the first 10%), gets a discount on the next most expensive insurance (the proportional insurance for the next 20%) and only pays full price for the most unlikely events, where the markets fall more than 30%.
Conclusion
There is no denying that hedges are very expensive, particularly for those who put more faith in their trading skills than their hedging skills. Like any high wire-act, however, successful traders need a safety net to allow them to perform complex and dangerous maneuvers.
Traders who are able to define their risk tolerance in terms of worst case scenarios and potential maximum draw downs have many ways in which to structure hedges to limit their risk. This article highlights three different approaches to structuring partial hedges for the purpose of maximizing portfolio protection while minimizing the cost of these hedges as well as the magnitude of certain types of risk. By combining these different partial hedging strategies, traders can customize their risk exposure to match individual needs and ensure that appropriate hedges can be constructed in a manner that is as cost efficient as possible.
Related posts:
Disclosure(s): I am one of the founders and owners of Expiring Monthly
Bearish Percentage:
Where is the excess bearishness despite 75+ point loss in the SPX? Not here yet. It is, in fact, still in the excess bullishness (above the red line) territory. This of course suggests severe selling is required to shake the market back into a state of excess bearishness (or at least more bearish)
Bullish Percentage:
The “correction” category spike explains why bearish % category is still only at 23%. Basically the bears have been thoroughly converted to closet bulls and are merely only anticipating a “correction”. When using the “corrective” response, you therefore anticipate higher prices than 1422 eventually after the “correction” is over. This is what the 3+ year rally has done: Kill the bears even when the overwhelming evidence finally falls into their favor.
Yes folks, a bank run on Greece is something you should be paying attention to. Yet somehow we have a belief in the higher powers of the FED.
Universal FED worship is in itself , a bearish trait that needs to be sold. (even I mentioned last night a possible FED-induced liquidity pump – clearly I too have been corrupted by Fed worship) When 100% believe that you “cannot fight the Fed”, you in fact would be better off taking the other side of that trade, at least in the long run (beware short term pain).
CONCLUSION:
These sentiment charts very much support the notion that if this is indeed an impulse wave down as we suspect, then we clearly have not even reached a “concern” spot let alone the “panic” selling of a major decline.
ORIGINAL POST
The analysis of tonight is pretty much a repeat of the last two updates: That the market is giving strong evidence that it is soon headed for a “third of a third” wave down of strong panic selling.
The charts below have added a “base” channel. Prices have broken though the base channel which can indicate a 3rd wave plunge is occurring. And soon the most panicked portion and strongest selling will be upon the wave count (i.e.-third of a third wave). Prechter calls this the “point of recognition”. We haven’t hit it yet from what I can judge.
Note that the break below the base channel gives weight to the primary count that this is an unfolding impulse wave down and not an A-B-C correction from the top.
Question is do we have a last sub wave small ii or (ii) violent bounce up prior to a strongest price move down? There are no overwhelming indications yet that this must happen although if it did, watch how it reacts to the underside of the baseline which should act as first resistance. The H&S neckline would be second resistance
Technically the slow meltdown and widening of the bollinger bands has not created a “must-buy-all-in” short term oversold. As Racer29 in comments likes to point out a slow “meltdown” can occur just like a slow “meltup”. This is where prices work off extreme oversold readings within the daily price action yet prices advance (down in this case) all the same.
So bottom line there is no overwhelming compelling contrarian sentiment evidence to make a large bet against the trend which seems clearly down. But more importantly there is no compelling wave evidence either because if this is a Minute sized wave [iii] down, at some point selling pressure should get more intense.
SPX Daily. The market is in search of some hard support.
CONCLUSION:
Sometimes a wave counter anticipates that wave evidence will turn in the favor of the count and thus we rush the count and things don’t work out as we wished. In this case we have been patient letting the evidence build upon itself. There is no rushing the count here as the wave, sentiment, credit spreads and technical evidence points to a market pressure buildup prior to an intense selling period or “third of a third down” rather than not.
So if we are wrong, it won’t be because we anticipated wave evidence that did not materialize. In this case the evidence is staring us in the face: 1) The impulse patterns down. 2) a certain “complacency” and non-panic (so far) in the price decline 3) The long period of time of non-confirmation between 10+ indexes over multi-months, weeks and days 4) The head and shoulders topping pattern 5) The solid break of the neckline 6) The subtle break from the base channel 7) the intraday working off of extreme oversold as prices dribble down and the 
Fundamentals: yes bank runs (Greece) can and do occur.
EDGE: Da Bears.
I do not have confidence in the short term count in labeling waves i and ii. It suggests a flat correction for a second wave which is very rare. Also, wave C (not shown) finishing wave ii was a diagonal that was truncated. This is also unlikely. But I see no better way to label it at the moment. I’m concerned I might be trying to shove a round peg in a square hole here. But regardless of the little EWP nuances for wave i and ii, the overall price action suggests that larger trend remains down for the short term. So I would be selling into strength with a stop just above 1415.32.
Learn Elliott Wave Principle (EWP)
The euro is respecting this Jedi Knight and is doing exact what I say. The forecast continues to call for further selling toward 1.2600, and probably much much further after that. I am staying short!
The Manic-Depressive Stock Market: What to Make of It
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.
Here is a surprise for you. European leaders did better than your favorite pundit!
They will also do better in the future.
For the last two weeks the dollar has moved higher versus the Euro and stocks have moved lower — almost an unbroken string.
The European story fit nicely with trader pre-conceptions about selling in May, following the pattern of the last two (count them!) years, and the lack of more QE.
Setting this up was a revival of the disaster scenario — a 2008-style Lehman like event where banks would topple and the financial system would crumble. Everyone’s favorite conspiracy website teed this up by multiple posts predicting a continent wide bank run. The leading CNBC commentators are bombarded with email and tweets from traders. In the modern age, the tweeters influence the content.
The bank run story has gotten widespread play, with journalists all solemnly agreeing that a Greek exit from the Euro would be a disaster.
The traders and pundits see European leaders as clueless bozos who did not do what they thought was correct, and did not do it in the time frame they thought was right.
Let us put aside that many pundits sought austerity while many others advocated growth. They all agreed that leaders were wrong for ignoring their recommendations.
An Objective View
This is going to be difficult for most people, but try to be objective about the various parties in Europe. Here is the question:
Has delay and bargaining improved things? Let us start by considering it party by party.
Turning from the particular participants to the collective, are things better or worse?
In the best case, things are much better than a year ago. Banks have more capital. They have lending from the ECB, with the chance to profit on the spread.
In the worst case, things are also much better. The original Greek debt with the threat of CDS payoffs was a major systemic threat a year ago. Those debts were negotiated, and things are a bit different. There are various current paths for Greece. Whether it is an exit from the EZ or another discount on debt, the stakes are lower than a year ago.
Investment Lesson
This is a continuing story of compromise and negotiation. Each party is benefiting from the delay. So far, it has also helped the collective.
Those complaining about “kicking the can” have been wrong. Those criticizing European officials have been wrong. Those predicting disaster have been wrong. Do you see a pattern?
The mainstream media has a fixation for trader/pundits who have all of the answers, even if they did not take Poli Sci 101. They translate everything into how they would do it in their own business — immediate and decisive action.
No matter that the recommended actions are in complete opposition, depending upon the political predispositions of the pundit.
Investment Conclusion
Markets can and do pursue irrational themes. You can almost guarantee that it will happen each year. When this occurs, the long-term, Warren Buffett style investor should be prepared to step up.
Mr. Buffett uses his own values and treats the market as giving him mis-priced opportunities. This is a concept that some investors understand in theory, but few can implement.
I have been following all of the Europe news closely. I will try to provide a range of useful perspectives in the next installment. At the moment, everything is on sale. I especially like cyclical stocks like Caterpillar that do not even emphasize Europe, technology stocks like Oracle, which has been very resistant to slowdowns, and growth stocks like Apple, which seems to be trading in line with the dollar.
Regulators need to make some decisions on trade repositories if they are to meet a year-end deadline, says Dan Cohen, managing director government relations at the Depository Trust & Clearing Corporation (DTCC). He also explains to Philip Stafford how regulators in Asia are looking at European legislation as a model as they look to comply with G20 mandates.
Citigroup’s Tom Fitzpatrick asserted that the U.S. market is emulating the pattern of a 1970s-style bear. The company’s chief technical analyst suggested that stocks would likely fall 20% or more on economic factors like sky-rocketing oil, declining economic activity, rising unemployment and a collapse in housing.
There are quite a few problems with Mr. Fitzpatrick’s assertion. Unemployment is woefully high due to a low participation rate, but unemployment has held steady. Oil prices are high, yet they have been falling recently; gasoline prices have dropped 16 cents in May.
Declining economic activity? Manufacturing and service sector activity are expanding, even if that expansion is tepid. Housing collapse? That one already happened.
Do not get me wrong. I am not playing devil’s advocate for the game. I’ve been warning folks for months about Europe’s potential to drag risk assets into the proverbial toilet. Review:
1. March 16. Relatively Tight Credit Weighing On Overseas Stock ETFs
2. April 18. 5 Influential ETFs Hold Back U.S. And International Stocks
What I am saying is that fewer and fewer pundits are willing to say that U.S. stocks can avoid buckling under the weight of Europe’s economic troubles. In fact, business writers are producing features that read like obituaries.
So are U.S. stocks already dead? In truth, U.S. large caps have only corrected 6.5%. And the 3-month lows for the S&P 500 haven’t infected each and every sector.
| Some Sectors Have Been More Resillient Than Others | ||||||
| Approx 3-Month % | ||||||
| Real Estate | ||||||
| iShares DJ Home Construction (ITB) | 9.6% | |||||
| SPDR DJ REIT (RWR) | 4.8% | |||||
| Vanguard REIT (VNQ) | 4.5% | |||||
| Pharma/Healthcare | ||||||
| First Trust AMEX Biotech (FBT) | 9.2% | |||||
| iShares NASDAQ Biotechnology (IBB) | 4.1% | |||||
| SPDR Pharmaceuticals (XPH) | 3.8% | |||||
| Consumer | ||||||
| Guggenheim Equal Weight Staples (RHS) | 3.4% | |||||
| SPDR Select Sector Consumer Staples (XLP) | 3.4% | |||||
| SPDR Select Consumer Discretionary (XLY) | 2.4% | |||||
| S&P 500 SPDR Trust (SPY) | -1.0% | |||||
My guidance to readers resembles what I am actually doing for my Pacific Park Financial clients. In the equity arena, we have little to no exposure to foreign equities at this time. Meanwhile, we are holding domestic ETFs, including dividend ETFs, consumer ETFs and pharma ETFs.
I have explained the rationale with charts. The chart for Vanguard All World excl U.S. (VEU) clearly demonstrates a downtrend, while the chart for Vanguard Total U.S. Market (VTI) still shows an uptrend.
In essence, it is more sensible to let unemotional stop-limit orders or trend identification determine when to sell U.S. stock positions. Assets like PowerShares S&P 500 Low Volatility (SPLV), SPDR Select Consumer Staples (XLP) and Vanguard High Yield (VYM) simply haven’t ”stopped out” or fallen below moving average support.
You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.
Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc., and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.
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As we start Wednesday morning with a bullish gap, let’s take a quick step inside the market for a “Breadth Check-up” on the S&P 500.
Here’s the intraday chart structure:
What we’re seeing is the S&P 500 Index on the 5-min frame with two Market Internals that show Breadth:
Before we discuss the current structure, let us review the most recent negative divergence that developed on May 10th into the 1,365 resistance area.
Breadth and VOLD peaked with price on May 10th, yet price pushed the next session back to 1,365 but this time we saw a visual decline – negative divergence – in both Breadth and VOLD.
This mid-morning situation (divergence) was the intraday peak ahead of the current decline to the 1,330 level.
Similarly, Breadth and VOLD pushed to new lows on May 14th (Monday) with price near the 1,340 index level.
Yesterday (May 15th) resulted in a price push UNDER the support level… but both Breadth and VOLD failed to register new internal lows, locking in a Positive Divergence.
Now, Wednesday’s session opens with a bullish gap and initial upward impulse which has resulted in a push-up in Breadth as well.
In sum, Breadth and VOLD – Market Internals – suggests at least initial price strength/bullishness as a result of their positive divergences.
We will look to price today and tomorrow for confirmation/follow-through with this potential bullish signal with respect to the key 1,340 index level.
Corey Rosenbloom, CMT
Afraid to Trade.com
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Tuesday, May 15, 9:25 a.m.
It was reported this morning that the German economy (GDP) grew by 0.5% in the 1st quarter, Austria’s by 0.2%, Finland’s by 1.3%, and Belgium’s by 0.3%.
That was enough to offset the declines in other countries and keep the overall eurozone’s economy flat at 0%.
However, it did not change the European Commission’s forecast that the overall euro-zone will be in a recession this year with its economy shrinking by –0.3%.
On the downside, France’s economy stalled, with its GDP growth at 0% in the 1st quarter. Italy remains in recession with its 1st quarter GDP shrinking by 0.8% for the 3rd straight quarter. Spain slid into recession, its 1st quarter GDP contracting 0.3%, negative for the 2nd straight quarter. Greece remained in a serious recession with its GDP negative by 6.2% in the 1st quarter. The Dutch economy shrank by 0.2% for the 3rd straight quarter. Portugal remained in recession, its GDP down 0.1%.
European countries not members of the eurozone, including Hungary, Romania, and Czechoslovakia, also saw their economies in recessionary contractions in the 1st quarter.
Meanwhile, investor confidence in Germany has declined in May for the time in six months. The ZEW Indicator of Economic Sentiment in Germany fell to 10.8 in May from 23.4 in April.
And that shows up in the charts of the German market.
If you don’t believe the influence Europe is having on the U.S. market watch how the S&P futures move up and down with the European markets prior to markets opening in the U.S.
This morning was typical. European markets were quite positive in response to the better GDP report from Germany. And the U.S. futures were quite positive too.
But when the European markets reversed sharply to the downside, the U.S. futures reversed to negative territory too in spite of the better than expected Empire State Mfg Index report that had added to the positive look of the futures for awhile.
A. Gary Shilling, Money-manager & president of economic consulting firm:
”Don’t buy your first home now unless you’re willing to lose 20% of its value in the next few years. It will take a further 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that prevailed until the housing bubble began. It adjusts for inflation and the tendency for houses to get bigger over time.”
Subscribers to Street Smart Report: In addition to the information in the premium content’ area of this morning’s blog, the new issue of the newsletter will be available sometime tomorrow in the subscribers’ area of the Street Smart Report website. And please stay tuned to the hotline for more potential portfolio changes!
To read my weekend newspaper column ‘Plunging Commodity Prices Are Ominous For Stock Market’ Click here.
Another ugly day, with a failed mid-day attempt to recover and then a late day sell-off.
The Dow closed down 125 points, or 1.0%. The S&P 500 closed down 1.1%. The NYSE Composite closed down 1.4%. The Nasdaq closed down 1.1%. The Nasdaq 100 closed down 1.0%. The Russell 2000 closed down 1.4%. The DJ Transportation Avg. closed down 0.8%. The DJ Utilities Avg closed down 0.4%.
Gold plunged another $ 26 an ounce to $ 1,557 an ounce.
Oil closed down another $ 1.69 a barrel at $ 94.44 a barrel.
The U.S. dollar etf UUP closed up 0.4%.
The U.S. Treasury bond etf TLT closed up 1.4%.
European markets were down sharply again. London closed down 2.0%. Germany closed down 2.0%. France closed down 2.3%.
The DJ Asia-Pacific Index closed down 0.6% Sunday night, and down 0.6% last night.
Among individual markets last night:
Australia closed down up 0.8%. China closed down 0.3%. Hong Kong closed up 0.8%. India closed up 0.7%. Indonesia closed down 0.2%. Japan closed down 0.8%. Malaysia closed down 1.0%. New Zealand closed down 0.6%. South Korea closed down 0.8%. Singapore closed up 0.4%. Taiwan closed up 0.2%. Thailand closed up 1.6%.
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European markets gave up early gains and are now down quite sharply again The London FTSE is down 0.8%. The German DAX is down 1.2%. France’s CAC is down 1.1%.
Oil is down $ .20 a barrel at $ 94.58.
Gold is down $ 2 an ounce at $ 1,555.
This week returns to being an average week for potential market-moving economic reports, which include the Consumer Price Index, Retail Sales, Housing Starts, FOMC minutes, the Fed’s Phila Fed Index, etc. To see the full list and times for each release click here, and look at the left side of the page it takes you to.
There were no reports yesterday.
This morning it was reported that the Consumer Price Index was unchanged in April, while the core rate (with food and energy costs removed) was up 0.2%. And Retail Sales edged up just 0.1% in April. But the Empire State (NY) Mfg Index bounced back to 17.1 in May from 6.6 in April.
Still to come is the Housing Market Index, which will be released at 10 a.m.
The pre-open indicators were fairly positive earlier, bounced further after the reports, but have now given up the gains as European markets have suddenly turned sharply lower.
Our pre-open indicators are now pointing to the Dow being down 30 points or so in the early going.
Subscribers to Street Smart Report: In addition to the information in the premium content’ area of this morning’s blog, the new issue of the newsletter will be available sometime tomorrow in the subscribers’ area of the Street Smart Report website. And please stay tuned to the hotline for more potential portfolio changes!
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I’ll be back with the next regular blog post on Thursday morning at 9:25 a.m.
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**** End of Today’s post*****
ORIGINAL POST
If we consider the April 2nd peak in the Wilshire 5000 to be the proper Primary wave [2] top – and there is no good reason not to – then the market could very well be working its way lower and setting itself up for a panic “third of a third” wave down of some degree. For the purposes of the charts below, we’ll call it a Minute wave [iii] down. (the circled green)
Here is the most bearish count and supposes that the market is soon approaching that point.
Here is a variation on the same theme in case there is a surprise liquidity-pumping move by a Central Bank. This allows for a 50% retrace of the May counter rally high and a final backtest of the broken neckline. This count would align better with the DJIA (not shown) wave count which topped in fact on the May rebound high.
CONCLUSION:
As stated last night, price action is definitely skewing to the bearish side of the counts and expecting any kind of major bounce might be wishful thinking. So in this case the top Wilshire chart may be the one to watch. The reason is we have yet to have that “point of recognition moment” in this decline. That can only mean we have not yet had a “third of a third” wave down. But the waves and price action indicate it may be approaching.
Yet if there is a liquidity pump like a QE3 announcement which I do not expect by the way (because they will only do that after a full-fledged panic), the count allows for a somewhat robust bounce to alleviate and head fake the market. That is where some variation of the second Wilshire chart comes into play.
Yet no matter the short term variations, both charts still imply that the market is in a larger Minute wave [iii] down and ultimately if this is true, the power of wave [iii] will take the market much much lower.
The green arrows show where the blue trend lines recently acted as support. Those levels (below the purple arrow) will now act as likely resistance. A move above 1,360 would improve the odds for a somewhat sustainable bounce. The chart below is as of 1:15 p.m. EDT.
