Some traders mock Elliott Wave theory. I pity them. If you ever want to see the market make a rip that seems to come from nowhere, study some Elliott rules in Frost and Prechter's classic Elliott Wave Principle. Many large players use Elliott trading principles, and when an Elliott rule gets broken, you can feel them scramble. It happened, yet again, at yesterday's low which was not a new low. The market exploded the moment traders realized the move was corrective rather than impulsive. It never ceases to amaze me.
I was half-way expecting it after the way the S&P acted on Wednesday. I got long some SPY 135 calls to test the waters, but didn't yet have high conviction. So I hedged them using SH, an inverse ETF, at about 1345. When the S&P rolled over and made a sharp low that didn't take out the previous day's low, that was the signal. Suddenly the entire move from Wednesday's high was not an impulse wave down anymore; it was corrective, and new highs were on the table. I bought SPY 134 calls and then dumped the SH. Boom.
All I care about now is either the May 2011 highs (1370.58) get hit, or they don't. Hopefully I can identify the difference. Today is option expiration. It's as good a day as any to shoot for it.
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