Some thoughts

This is how greed ends.... to quote stupidity caused by greed - "DJ 30k without correction positive thinking".
I repeated two weeks in a row "what goes vertically higher comes the same way lower", look at March 2000 "all the January gains will be wiped out in February".... it is never different it is always the same, because the reason is human greed and stupidity and it does not matter if it is about tulips,bitcoins,volatility or what ever.
First the Bitcoin guys feeling the pain and still buying the dips and now the short volatility traders seeing the trade exploding in their face. The unthinkable happened - VIX doubled in one day, XIV down more than 80% and according the prospect should be liquidated. Volatility suppressed unnaturally around 10 or below for a year and now short volatility traders receive their margin call. Bitcoin looks like a walk in the park:) if you ask me.

So the short volatility trade imploded taking the market lower with it. I have read a few times that this trade is very dangerous, here is one podcats (from minute 12)..... I can not say if there is more positions to be unwinded or not, I am just a chart guy. According to the guy from the podcast ETFs/ETNs like XIV are the least problem.


I hope you did not let greed dictate your actions and took profits. It was a great run since November, but it was time to take your money off the table and go short. What now? The bulls must pray that FED will save the market:), but FED said it will take the punch bowl away and it cares about the bond market where the skyrocketing yields are problem, the stock market is less interesting. It could start QE again when they said they will do the opposite or.... move money out of stocks into bonds. This panic comes right on time, what happened with yields yesterday:) I think they will save the day just to let the stock market drop later hoping it will decline in orderly manner.

So what about the charts, what we know - the move looks like an impulse, usually the panic low is not the low, based on history this moves has the DNA of a sharp correction in a bull market caused by excessive greed, usually a bear market starts slowly and not with a crash.
What we do not know - two options the bull market is over or this is wave IV. How should the price action look like:
- the bull market is over - we have an impulse so this is wave 1, but extreme fear and most of the fuel to the downside is burnt. I would expect wave 2 deep retracement lasting for months so that traders forget the pain and talk about DJ 30k again. Example - August 2015 panic sell off for three days followed by wave B for 3-4 months.
- this is wave IV - this impulse lower is wave A, wave B should follow. It should move quickly higher and retrace at least 50% of the sell off. Examples March 2000 or February 2007 - a-b-c zig-zag with one panic wave and the other one shorter 61,8% Fibo. The current wave is obviously the panic move so after wave B expect wave C=0,681xA.

How will the chart look like in both cases(of course the wave lower could have a few more percent lower) - green the bull market is not over, red the bearish case.
I still think such price action fits better as wave IV, but lets see if we have A-B-C test of MA200 or something else.