I still have “The Hills are Alive” echoing in my head. It was so loud at 3:35 AM this morning that I sent the GG Overnight System Alert from GG Alerts to subscribers of this substack by mistake. (I arrived home late last night after a flight full of singing nuns from Paris to Singapore.)
This market is a tough place to be for longer term swing traders.
First - from my post on March 6th, I was filled on my plan to enter SPY butterfly’s. For me, this was mostly a hedge on some of my unannounced bearish plays. For what it is worth, the hedge is looking like a full loser, but my two bearish plays were partially exited (50%) at a double and then partially exited again (25%) at a triple. I still have the remaining contracts and will decide what to do with them after market hours based on what the market does for the day in question.
Anyway - the green box is my profit zone on the butterfly’s. You can see the risk graph following the chart. Note - I’m expecting this hedge to lose. But I’m not at all concerned.
The subject of this post is actually a potential pattern in the works: the Wolfe Wave. Readers can look up the definition of the Wolfe Wave if they like - check out Investopedia. For me, the set up is a lot more simple than its definition.
SPY is in a rising wedge and has broken out to the downside. If the breakout fails and SPY reclaims some key levels - the 200 sMA, $400, and the 20 eMA starts curling up and perhaps crosses back over the 50, then a Wolfe Wave target is setting up to at least the top of the rising wedge and much further.
On the flip side, if we are in a bear rally and stall at the 200 sMA and consequently do not retake the bottom of the rising wedge, SPY has the potential of heading towards another Wolfe Wave target down below.
Until one of the above scenario’s unfolds, I am unwilling to take a position, long or short. Chop, chop, chop means that it is better for me to sit on my capital and just wait it out (at least from the perspective of longer term swing trading.)
Sometimes traders forget - cash is a position. We don’t have a gun to our heads that say we don’t have to trade. I have stated this many times the last few months.
All this said, I am definitely waiting for the next opportunity to place my capital long or short via various option strategies as the current set up in either direction has a higher likelyhood of running (a swing traders goal). If SPY makes it past $400 and stays there a few days, I’ll go long. If it gets stopped at the 200 sMA and starts reversing, I’ll go short.
I do have some select opportunities I am looking at per below:
It is very possible that USO breaks down here. It is also possible that it bounces. I am interested in jumping onto a breakdown, but will take 1/2 off very quickly.
If USO closes below $62 on the daily, I will buy a 1/2 position (1% of my account) of May21 delta 30 puts. If it confirms the downward push with a lower close, the following day, I will buy an additional set of puts with 1% of my account and set a contingent stop on USO => $62. USO has the potential to go to the $45 level. At the same time, I will look to take partial profit on a full position along the way, selling 1/2 at a double and another 1/4 at a triple.
If USO confirms a bounce, I’ll look at doing exactly the same as above with calls. However, will sell all at a double.
This trade possibility may trigger in the next day or two.
Please use your own due diligence!!