Russell Index bounces off 27% Fib extension

The Russell creates some beautiful patterns from day to day. Today's Fib extension was a perfect example. Although it doesn't look like much on this chart, it seems to have set up a classic Turn Around Tuesday. As I explained in the previous post, this market needed to show me the money before I continued to build a short position. This afternoon's action -- and afternoon action (the big boys) is what you want to take note of -- went a long way toward that. While I took a small put position just after 1:30pm EST, I booked profits before the close while my VXX position finally went green. I will continue to build this VXX position as a medium term hold.

The market is a fractal, and the action right now feels like early 2007. Whether or not it echoes that form and pattern, or is affected by an exogenous event like the Chinese stock market correction in Feb '07, the Yen disruption in Jul '07, or by China's trade balance figures in the early hours of tomorrow morning, I continue to feel the market is priced for perfection. One spark is all it will take. Just as the Yen rang the bell back in July '07 -- it started strengthening, showing increasing risk aversion and an end to the carry trade -- the USD could ring it this time with an unexpected thrust to a new yearly high. After all, we have yet to see the commodity trade, Forex market, or the bond market truly snap to attention and show some fear. Stay tuned.