As January goes ... So goes the whole year.
With less than a week of trading days, it is safe to say January is a down month. Will 2014 also be a down year leaves a bad taste for medium-term traders/investors.
>> SnP500 Bearish View: http://img10.imagefra.me/i51s/aarc/141u_5c5_ubk5c.png
>> Dow Jones Bearish View: http://img15.imagefra.me/i51s/aarc/141u_baf_ubk5c.png
SnP500 and Dow Jones are now inside the Potential Trend Reversal Resistance Range which is the usual profit taking area for traders/investors. This time around, it is the monthly chart which means big stakes are on the table.
For short-term traders, it is also becoming harder for the bulls to get a good traction:
>> SnP500 Daily: http://g15.picoodle.com/ltd/img15/5/1/27/aarc/f_141u_36c_ubk5c.png
A triangle is the harbinger of potential last consolidation range that can support the last leg rally. But the May-Oct consolidation range is not fully qualified as a triangle hence there still remains good possibility the bulls can keep the trend intact but with greater odds against them than ever before.
UP HERE ... the better trading strategy for the medium- to long-term is to exercise CAUTION as the 127.2% to 138.2% Fibonacci Extensions are the major hindrances against a vertically sustainable rally. Likewise, a pullback or correction of 10% to 20% had been expected by many traders and investors late last year but was finally tapered down with the resolution of the Fiscal Budget and the fast approaching Santa Claus Rally.
But now that Christmas is over, and investors got their Santa gifts; profit taking becomes the most obvious next expectation.
- For medium-term traders: Wait and Watch could be the most appropriate course of action with possibly shorting the markets if SnP500 makes a weak bounce up toward the Right Shoulder of the potential Head and Shoulders on the Daily Chart.
- For short-term traders: A bounce up is expected as SnP500 tries to recover from the over-sold condition. Thus, it is possible to go long here today or tomorrow either using the Inverted Head and Shoulders forming on the 5min to 15min charts or a breakout above either yesterday's high today or today's high tomorrow. Try to reduce potential losses just in case SnP500 kept plunging down by using the SOP 1:3 Risk vs. Reward Ratio. Upside target is the Daily 50ma Resistance for a Day-Trade thus fairly easy to estimate the reward. The risk factor can be computed depending on the actual entry price when trading either SPY or SSO for ETFs. For the more advanced traders; ES and/or YM can be used to day-trade the markets.
- I raised 10% cash on my long-term portfolio as a precautionary investment strategy as SnP500 starts bumping against the 1849.20 (secondary) extended Fibonacci extension limit on the monthly/weekly charts. 1823 to 1923 remains the primary resistance range.
- I bought some YM yesterday using a Divergence Buy Signal on intraday charts with yesterday's low the hard stop loss.
- Will try to short the ES futures if SnP500 goes into a weak corrective rally on the Daily Chart that may last more or less 13 days.