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  • The Big Bad Guessing Game Continues 0 comments
    Sep 20, 2013 11:12 AM

    We've got a vertically strong rally and September 2013 is now universally accepted as a rally month instead of the many pundits who kept predicting September would be another 1987 Black Swan to be followed by a Black October.

    Knowing September would be a green month was not a prediction nor was it a wild guess. It was a high-confidence scenario based on high probability SnP500 would at least make an a-b-c corrective rally for 6 to 8 weeks from the August 28 bottom AND most importantly Compq produced a Descending Triangle in August. Those patterns stacked up against the bears who desired September to become a wash-out month. The super-aggressive bears got their heads handed to them on silver platters. September is now known as the short-squeeze month next only to the Sell-in-May mantra four months ago.

    << Compq Triangle: http://g10.picoodle.com/ltd/img10/5/9/5/aarc/f_141u_14e_ubk5c.png

    >> SnP500 Transformation: http://g15.picoodle.com/ltd/img15/5/9/17/aarc/f_141u_20b_ubk5c.png

    Right now Compq gives no clear signal whether it is already producing the 3rd wave rally or not. Thus better leave it as it is until a clear picture presents itself. SnP500 morphed from an impulsive i-ii-iii-iv-v run down into a Double Zigzag corrective W-X-Y down that enabled it to make an impulsive rally together with Nasdaq. Dow Jones was able to catch up with very impressive wide-range bars as it cleared out the Daily 50ma resistance like hot knife to soft butter.


    The R2K Super-Aggressive Scenario of May 2013 was finally eliminated when Russell2000 made a higher high rally this week. However, Compq Triangle Pattern introduced another high-probability scenario for the medium-term thus we are back to the Guessing Game with 4 scenarios:

    #1) Compq: http://img15.imagefra.me/i59k/aarc/141u_96c_ubk5c.png

    #2) R2K: http://g15.picoodle.com/ltd/img15/5/9/19/aarc/f_141u_dd0_ubk5c.png

    #3) Spx: http://img15.imagefra.me/i59k/aarc/141u_b7e_ubk5c.png

    #4) DJ: http://img10.imagefra.me/i59k/aarc/141u_a7d_ubk5c.png

    I arranged the probability based on the most recognizable patterns. Compq's Triangle is among the most reliable patterns for fourth waves and thus it gets the top honor. Stair-step patterns appear more often than triangles but I don't have very high confidence in it's effectiveness. Obviously SnP500 and Dow Jones are forming patterns that can be interpreted in several ways thus they are now at the bottom ranks - not necessarily less effective than the other two but can create more confusion than otherwise desired.


    Trading Strategies:

    Compq's Triangle gave us a head's up as we prepare for an eventual 10% to 20% correction to happen in the not so distant future. Compq is the primary candidate to give up the ghost as it approaches the 3889 Nominal Target in the next several weeks that may not last longer than 3 months = measured from the Aug 28 bottom.

    SnP500 and Russell2000 are still possible 1-2-3-4-5 rallies on their Daily Charts charts with several months of potential rallies still in the woodworks = measured from the June 24 bottom with the 3rd the primary candidate as the longest and/or extended wave. Far higher and far longer than what Compq and/or Dow Jones can achieve at their current forms.

    - Best course of action right now is to just Wait Again for an a-b-c pullback down and Day-Trade the trend. Trade the Trend until it is no more. A pullback down that may last 2 to 3 weeks is now the expectation as the latest rally from August 28 lasted more than 2 weeks;

    - Once a successful correct entry is achieved immediately use Trailing Stops in order to prevent substantial losses just in case the rally suddenly fizzle out or to protect profits if they keep rallying up.

    Those are SOP Trading Strategies. No magic, no voodoo, no hocus focus needed in order to achieve longer term success in trading. Control losses to the minimum acceptable, and let the profits take care of themselves.


    UP HERE... Contrarian Bears are in a look out for Divergence Sell Signals and the struggle becomes much harder for the bulls despite considerable upside potentials for Russell2000 and SnP500. Thus, try to avoid making medium-term to long-term trades/investments.

    * As indicated on the last Instablog; I bought SSO at $81 to $82 range and sold half at $83. The other half was supposed to be sold on a-b-c corrective rally. But then SnP500 suddenly perked up, so I decided to make a limit sell at $87 double top resistance telegraphed in advance on my Comments last week. SSO rallied a bit further than that but money in the bank is a 100% guaranteed successful trade.

    ** I have been trimming my long-term portfolio since late July and going into this latest rally. Right now, I was able to raise 3% cash by getting rid of the short-term trades. Objective is to raise 10% cash on or before SnP500 reached the 1823 Major Resistance on the monthly chart = the 127.2% Fibonacci Extension also known as the Trend Reversal Resistance Level for contrarian traders.

    *** Also starting to tighten my Trailing Stops on the medium-term trades bought near the June 2013 bottom and those bought near the June 2012 bottom. IF SnP500 suddenly goes down on unexpected crisis event(s) those stops will protect major portions of profits and should raise my cash balance to 10-15%. IF a +/-10% correction remains the first consideration then waiting for 2 to 3 months becomes the objective in order not to prematurely enter the markets with wrong timing buying mistakes. Wait 6 to 9 months if a +/-20% correction becomes the highest possibility scenario for bottom fishing purposes.

    **** Alternatively, shorting the markets is now becoming much more palatable as Dow Jones and SnP500 approaches their upper target ranges on the weekly charts (look at the upper left corners for those targets). But then, it is not wise to go short Big Time right now with the current i-ii-iii-iv-v impulsive rally on the intraday charts considered as highly sustainable for more upsides for a complete higher degree 1-2-3-4-5 rally on the daily charts - barring crisis events happening sooner than expected.

    Short-term short-sells are ok but suitable for the more experienced and nimble traders. There are always lots of opportunities to scalp the markets but 93% of neophyte scalpers lose their trading capital on their first 3 years of stint. The more successful traders I've trained with on scalping have at least 15 years experience day-in-and-day-out slugging it out at the trenches.

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