The 5th Wave Has Begun, Volatility is Expanding

Volatility is expanding as the small caps (IWM) break to the downside:

Looking at the VIX, the downtrend from the Nov. peak broke today:


Longer term, the S&P clearly seems to be continuing to the downside:

If we use a simple measured rule, when the S&P 500 breaks 741.02 (November low) the target would be 538.19 which is 43% below the early January high. Of course at first glance this seems ridiculous, but I wouldn't count it out. The 3rd wave in this bear market involved a 48.5% decline, so the magnitude is not completely unreasonable. Also, I have seen some seemingly sound fundamental arguments for a target in the 500's. In terms of timing, for the Elliot wave model above, the up cycles both lasted two months while the down cycles lasted 5-6 months. If the 5th wave really did begin in early January, as I'm implying, then this would suggest a bottom in late Spring or early Summer. Put a gun to my head, I'd guess the S&P 500 bottoms in the 500's in June ending this bear market (the economy will take longer).

If you are looking for shorts, I still like STT and I know betweenthebars is a big fan of SPG. If you are looking for inspiration, take a look at TRMP, Donald Trump's company. Good luck and remember, you are responsible for your investment decisions.

Disclosure: I own SPY puts.