Well, So Much for a Vacation
By Jeff Clark
August 30, 2007

This is supposed to be one of the slowest weeks of the year.

The big-time traders and specialists on Wall Street always go on vacation during the final week of August. They pack their bags, head off to their Hampton summer homes, and spend the last few days of the season partying on their yachts and saying things like, "Muffy, would you please pass the crab cakes?"

With the bigwigs out of the way, there's not supposed to be much trading action. In fact, I'm quite certain that every Second in Command is under strict orders not to let anything "big" happen.

I'm also certain that there were a lot of heated phone calls between the Hamptons and Manhattan on Tuesday evening after the Dow plummeted 262 points.

There's no way to know what was said during those phone calls. Well, no way unless you work in the White House. But I imagine the final words spoken were something along the lines of, "Fix it!"

And fix it they did…

By the end of Wednesday's trading session, all of the major market averages were right back to where they ended the day on Monday.

It's as if Tuesday never happened – neither did Wednesday. And now, with everything once again right with the world, I doubt we'll see anything significant happen for the rest of the week. Next week, however, is a different story…

The bigwigs come back to work on Tuesday. They'll probably be a bit hung over and maybe suffering from a little indigestion brought on by the lethal combination of seafood, Chivas Regal, cigar smoke, and a rocking boat.

And, if that's not enough to motivate them to sell a few shares, then maybe this chart of the S&P 500 will do the trick…

Here we have a series of lower highs and lower lows. It's a well-defined declining channel that looks to me like it's ready to make one more stab at another lower low. Of course, that will fit in quite nicely with the whole idea of an ABC correction.

While the jury is still out, and we'll only know the true verdict with the help of hindsight, it looks like the rally on Friday marked the high point of the B-wave bounce. That means we are now in the C wave, and we should soon see a retest of the recent lows.

Aggressive traders can try to profit by owning a few puts here. But the real money is going to be made when the C wave finally bottoms and we pile into the long-side positions. So put your stock "wish list" together and be ready to buy when it looks like the world is coming to an end.

It'll be one of the toughest things you'll ever do. But it will also be one of the smartest.

Who knows? Maybe next year you too can be enjoying champagne and crab cakes with Muffy and the gang.

Best regards and good trading,

Jeff Clark