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Goodbye AAA Rating

Jul. 27, 2011 1:10 PM ET
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Today's run down for the SnP500 and Compq made it clear the markets do not expect a positive resolution to the possible US Dept Rating Downgrade:

- img37.imagefra.me/i57r/aarc/12xv_4e8_ubk...

SnP500 is testing the daily 50ma support. So this 90% probability of an intraday complex 1-2-3-4-5 run down faces considerable uncertainty. Better to wait and watch and buy if the 4-5-iii-iv-v-3-4-5 idealized runs actually happen:

- img38.imagefra.me/i57r/aarc/12xv_f6c_ubk...

The pattern is still bullish until it is no more.

The major question is still how long the uncertainty and/or potential sudden death sell-off will last.

For the short-term bears:

- img38.imagefra.me/i57r/aarc/12xv_318_ubk...

For the longer-term bears:

- img40.imagefra.me/i546/aarc/155w_71f_ubk...

- img37.imagefra.me/i57p/aarc/12xv_1f2_ubk...

The last chart is an example of a Double Flat Combination that happened to Dow Jones from 1965 to 1982. SnP500's (and Dow Jones') March 2009 to Present rally has many similarities to what happened in 1974 to 1976.

Elliott Waves do have much more practical applications than most other technical analysis. Problem is finding out which scenario has the higher probability of success Most of the time, it is long after the correct scenario has kicked in before it will be confirmed as the correct scenario. Many times confirmation will come after the correct scenario has already completed and new scenarios will start to manifest themselves.

That is why trade planning; formulation of trading strategies, and plain old trade management techniques are of prime importance no matter what TA is used as a tool to help traders make money or to help prevent losing significant amount of money if the analysis proved out to be wrong.

Read my Comment of July 25, 2011 for statistical rate of success for SnP500 and Dow Jones on their monthly charts.

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Thurs 11:00 am Update

The SnP500 is still on track for a complex 1-2-3-4-5 assuming we don't go into a sudden death meltdown.

- img37.imagefra.me/i57s/aarc/12xv_a4a_ubk...

The Dow Jones, however, is a potential completed i-ii-1-2-3-4-5-iii-iv-v:

- img38.imagefra.me/i57s/aarc/12xv_f89_ubk...

Dow Jones is a potential corrective 9 count 1-2-3-4-5 (labeled as i-ii-1-2-3-4-5-iii-iv-v); SnP500 is a potential 13 count still unfinished (too long so see Spx 30min chart); Compq is potential 9 count still unfinished similar to Dow but with the iv-th presumably in progress.

Well, again, we do not live in a perfect world.

---------------
I bought back the 1/3-rd SSO Swing Trade (stopped out early yesterday) before the open today using divergence buy on the 24-hr 30min ES.

Also bought a new YM Trade (already sold the YM Trade bought last July 18 on the run up using the daily chart Short-term Bear Case Scenario on daily chart for targeting the 5th run up - see 'Dog Days' Instablog. I used the July 18 YM Trade to take advantage of possible 5th wave for the Bear Case). This new YM Trade is a possible hold just in case Dow Jones do go into a 1-2-3-4-5 rally on the 60min chart.

The conservative trade is of course wait until the US Dept Drama got resolved positively before going long equities.

Good Luck.

Friday 10:00 am Update:

The Sudden Death Meltdown Scenario is starting to take shape today:

- img38.imagefra.me/i57t/aarc/12xv_b46_ubk...

- img38.imagefra.me/i57t/aarc/12xv_512_ubk...

SnP500 is still an 11-count down which is still a potential corrective run down instead of the impulsive count as labeled on the 30min chart.

For the bulls; this is their last good chance:

- img38.imagefra.me/i57t/aarc/12xv_2d6_ubk...

SnP500 is still a Bull Flag.

At this juncture, those who shorted at the top using the Bear Case Scenario illustraded in the Dog Days Instablog should start tightening their stop losses since the market has been pricing the Default Scenario for more than a week already. A sudden resolution of the Dept Drama could result in a massive gap up due to the pent up desire of many traders and investors to buy this dip.

I sold the 1/3 SSO and YM back yesterday when they failed to sustain the divergence buy trade into the afternoon session. Bought back YM today using the 24-hr 15min divergence support 127.2% at 12,037.

- img38.imagefra.me/i57t/aarc/12xv_bff_ubk...

Maximum allowed run rate for the 5th wave on the 15min was 12,006 with the 5th the shortest. So I set the buy limit at 12,037 and the stop loss below 12,006 and let the market decide whether to respect the wavecount or go into a spiral meltdown mode. No need to use any esoteric timing method. Simple wavecounting did the trick. For this case since the wavecount was too obvious.

The wavecount on the 240min chart is much harder to analyze but could be an expanding Flat or Triangle:

- img38.imagefra.me/i57t/aarc/12xv_b56_ubk...

Who knows, a resolution could result in 300 to 500 points gap up for the Dow Jones. So be very careful using stocks and ETFs for shorts. At least I can protect YM against a sudden-death meltdown. May buy SSO again today but will be used as a day trade if a reversal rally does not happen within the day.

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