I have built up a position in DIA Nov. 08 puts on rallies over the past couple of weeks, and with the Dow up 300 at 3:30 today, I couldn’t resist adding a few more than I would ordinarily be comfortable with. I intended to part with the extra contracts maybe tomorrow or the next day in the inevitable correction after such an awesome rally (1,208 points, 14.8%). As it turned out, the Dow proceeded to drop 473 points in about 15 minutes, and I unloaded the contracts at the close for the fastest money I’ve ever made (as regular readers know, I’m more fond of buying LEAPs to capture the big, multi-month moves).

From Bigcharts.com, here’s the 1-day chart (1 minute):

Click image for sharper view.

As I count the Elliott Waves, this pattern has the A-B-C shape characteristic of a countertrend move, so it doesn’t change my expectation for new index lows in the coming days or couple of weeks. The mini-crash at the close looks like waves 1, 2, 3 and 4 of an impulse wave, which would resolve with another drop below the wave 4 low near the open tomorrow. Impulse waves move in the direction of the one-larger degree trend, as opposed to A-B-C moves.

Today’s chart also illustrates another textbook pattern: the contracting zig-zag from 2:40 to 3:15 resolved in the direction of the previous trend — up, way up. The 1-month pattern is still a very large contracting zig-zag, which, should it stay true to form, would resolve downwards, perhaps to Dow 7000, though a push above the October 14th high first is also possible:

Click for sharper view.

All of this near-term wave counting and trading is really just a hobby for me. I don’t use big money in it, but just enough to keep my attention so that I learn something. My real money is in T-bills, gold and still a boatload of 2010 puts that I accumulated over the last 15 months (see disclaimer), though I have been paring that position in the crash. If I hadn’t been selling, it would be about 85% of my portfolio by now.

–

Sorry for the paucity of posts lately. I’m in the middle of a trans-oceanic move, ditching a ridiculous Latin American country for a central European one known for staying sane while the rest of the world goes nuts.