Markets failed to go into 'irrational exuberance' on the short-term basis and instead went into the path of least resistance = which is the Double Divergence Sell Signal on the daily chart.
>> SnP500 Daily: http://img15.imagefra.me/i5c3/aarc/141u_164_ubk5c.png]
>> SnP500 Intraday: http://img15.imagefra.me/i5c3/aarc/141u_308_ubk5c.png
Using the daily chart, conventional EW analysts would consider the highest price as the termination for the 3rd wave.
When viewed on the intraday charts, it is obvious the v-th of 3-rd terminated before the SnP500 made a 'throw-over'. Since there is no corresponding minor 1' near the bottom of the i-st wave then the throw-over can be considered as an X-wave for the bulls. The 4th wave may or may not have terminated at or near the 38.2% retrace (at or near 1787) if the expected double zigzag down is masquerading as a i-ii-iii-iv-v run down. But being considered as a complex corrective for the 4th, termination point can be anywhere.
Expected pullback or consolidation range for the 4th is +/- 7 days.
- Using the daily chart; we are now down with 2+ days.
- Using the intraday chart, it is now 5+ days of complex correction for the 4th wave. Acceptable since the 1st wave is the longest, the 3rd consumes less time than the 1st and the 4th also usually consumes less time than the 2nd.
The last Trade Setup can be considered an easy one for many trend traders with SOP trading strategies as innumerated on the 'The Thrill of the Chase' Instablog.
This time around, the markets are not giving us an easy trade with the un-expected 'throw-over' to 1813.55 making a high-confidence wavecount ever much harder to achieve. Rule of Alternation?
* The speculated 'irrational exuberance' rally, at least for the short-term basis, did not materialize thus my YM Breakout Buy Trade (triggered at 16,099) got stopped out, on the way down, with tiny profits. SOP trading strategy when using a breakout buy is to immediately use trailing stops, to at least breakeven, when price started to rally - using intraday charts for this particular case.
This is not an easy trade to execute thus there are several possible trading strategies for the bulls:
1. Intraday Traders should buy some positions at or near the most recent run down of 1787 (or use the Daily 20ema as a major support) then wait for strong bounce up to happen. Then buy the rest if a minor a-b-c down follows that strong bounce up. This requires extremely nimble trading strategies for those who want to reduce potential losses to the bare minimum (by using tight hard stops and very tight trailing stops) since we do not have a high confidence analysis. But then SOP trading strategies, when expecting a 4th wave, is to buy at least some positions at or near the 38.2% retracement (= 1787 level);
2. Wait for an A-B-C down using 1813.55 as the termination for the 3rd wave on the daily chart. For this particular strategy, the 4th wave is assumed progressing with 2 days down. +/- 5 days to go with expected Zigzag down that should terminate at 1775 if the B-wave up retraces half of the A-wave down. Major Support on the Daily is the top of the 1-st wave (= 1775 level).
For the Bears: Trading Strategy is quite basic. Use the Divergence Sell Signals (the first one failed, the Double Divergence Sell Signal triggered) to make an entry for those who prefer to use the daily chart. For intraday charts' traders; the more effective way is to wait for a i-ii-iii-iv-v run down; then short the expected a-b-c up or 2nd wave up as illustrated on the intraday chart. Keep it Simple (KIS).
Fine-tuning the EWA.
1. The iii-rd wave down is already extended and hence v = i in most cases. Maximum allowed run rate for v = 1.62x of the i-st. Much than that and a possible 9 waves or 13 waves of Spiral Meltdown can happen - OR - a bigger double zigzag or triple combination down can happen.
2. IF an a-b-c pullback up happens and it retraces much more than 61.8% of the 1 or A wave; then higher probability it is a 2nd wave instead of a B-wave.
3. IF an a-b-c pullback up happens and it is less than 61.8% of the 1 or A wave then 50-50 chances it is either a 2nd wave or a B-wave.
4. IF an a-b-c pullback up happens then the expected A-B-C down (for the bulls) turned to be that C > 1.382x the A-wave; then more likely it is morphing into a 1-2-3 instead of being an A-B-C down from the 1813.55 top;
5. IF a vertical rally suddenly happens that retraces more than 61.8% of the most recent run down; then more likely the 38.2% retrace is the termination area for the 4th wave.
* Going short the markets (or protecting long positions with hedges) is now very palatable, if not recommendable, as SnP500 approaches it's 1823 Major Fibonacci Extension Resistance on the monthly chart. And Dow Jones 16,300+ Major Confluence of Resistances. Thus, I will be trying to go short ES on an intraday a-b-c pullback up to protect at least a portion of my medium- to long-term portfolio - using scalper's techniques in order to reduce potential losses to bare minimum just-in-case SnP500 (and the other major indexes) just kept rallying.
>> SnP500 Bearish View: http://g15.picoodle.com/ltd/img15/5/11/25/aarc/f_141u_e1e_ubk5c.png
>> Dow Jones Bearish View: http://g10.picoodle.com/ltd/img10/5/11/25/aarc/f_141u_f3a_ubk5c.png
** I was able to raise to 6-7% cash (from 5%) by selling some minor positions this week including some more AAPL shares as it reached the 5'-th wave nominal target of 563 measured from the 4'-th wave bottom. 577 is still the 1'-2'-3'-4'-5' nominal target, measured from the 2'-nd wave bottom, thus the 5th should still go a little bit higher than 563. See my Nov 27 Comments for AAPL EWA analysis.
Objective remains to raise at least 10% cash as SnP500 approaches it's potential monthly trend reversal resistances of 1823 to 1923. With the speculated 'irrational exuberance' out of the way; either finalize raising cash on the 5th wave rally (for the SnP500) or on the way down - if the 5th wave does not materialize.
*** Will still keep following the trend on the short-term basis (Day-Trades) using YM instead of SSO. Until it, the trend, is no more.