Subscribers staked out call positions on Friday, playing for a bounce from an important-looking Hidden Pivot target at 35.48. Although we’ve been waiting patiently for weeks for VXX to fall to that number, assiduously avoiding “averaging down” with our fingers crossed, the bounce we were expecting failed to materialize. Despite this, I suggested taking home some calls over the weekend, since, as I half-joked, the Yellowstone caldera could blow, launching VXX to the moon. My recommendation for Monday is to exit the calls on the opening unless index futures are trading significantly lower ahead of the bell, suggesting a market selloff in the offing.
The fact that so very clear and compelling a target as the one at 35.48 was exceeded at all, let alone by a whopping 0.45 points the first time it was touched, strongly implies that lower prices are coming, perhaps significantly lower. Specifically, and assuming the stock market has not crashed Sunday night, I am shifting my gaze to the 26.32 target shown. That such hitherto unfathomable depths will be achieved is difficult for me to imagine, since it implies that the S&Ps are about to ratchet much higher, extending their hyperbullish parabola for yet another four to six weeks. Yes, there’s always the chance that the secondary pivot at 33.81 (see inset) will turn the tide. But the new pattern looks too pretty for us to avoid the conclusion that VXX will eventually fall to an all-but-unthinkable 26.32. As is our custom, we will take no position in the interim, since doing so only at major Hidden Pivot supports has saved us a lot of stress — and money — as VXX has continued to carve out historical new lows routinely for months.______ UPDATE (Oct 16, 10:52 p.m. ED): Yes, I know, I said I would recommend bottom-fishing only at major targets. But this one looks so juicy that I’m going to suggest buying a couple of Oct 20 calls at the 35 strike if VXX gets within 0.04 of the 34.26 target. Stop yourself out if it trades below 34.20, since this support is going to work precisely if at all. _______ UPDATE (Oct 17, 7:32 p.m.): Just one change: Buy Oct 20 options at the 34.50 strike. We’re not leaving ourselves much time, so don’t get in any deeper than you can afford to lose without pain. I am not suggesting going out to Oct 27 because the target that we’re bottom-fishing is not important enough to warrant the extra week._______ UPDATE (Oct 18, 9:27 p.m.): Cancel the order, since I don’t fancy having our patience tested any more than it has been tested already, especially for a trade that was no big deal to begin with.
