Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

O Brother, Where Art Thou?

It took another potential episode of war OR possibly rumors of war for the markets to provide some kind of pullback. A pullback too small for comfort specially among value traders who kept waiting for a test of the SnP500 Daily 50ma Support residing at 1822. Twelve points below yesterday's low before the news of Russian troops pullout hit the wires over-night.


Back to the USSR:

We are searching for tell-tale signs where this 5-years old rally should top out before it crumbles into pieces like the USSR of old (or rather make a correction of 10% to 20%).

>> SnP500 Daily Super Conservative:

>> SnP500 Daily Triangle Scenario:

>> SnP500 Weekly Scenario #1:

>> SnP500 Weekly Scenario #2:

>> Dow Jones Weekly Aggressive:

>> Irrational Exuberance Scenario:

<< 1982 to 1987 Vertical Rally:

For the highly skeptical traders/investors; SnP500 MUST NOT rally far above 1905 in order for their Super Conservative Scenario to work that should give them their desired 10% to 20% correction in the weeks and possibly several months ahead.

A triangle iv-th wave remained a good possibility but not necessarily a high probability. Thus, we have to keep a close eye on this particular pattern.

For the medium-term traders: The Weekly Scenarios are based on the initial trade setups of Nov 20, 2012 wherein potential targets were defined based on which pattern might happen in the medium-term future. That medium-term future is fast approaching after more than a year of expected vertical rally. Which scenario will unfold to be the correct one remains to be seen. Until then it remains a 'Process of Elimination' with a correction of +/- 20% the most obvious answer.

The Irrational Exuberance Scenario is the one possible outcome if indeed SnP500 follows the same pattern it did in 1982 to 1987 with 251% vertical rally. A +/- 14% correction that should last a year or so should happen if we are to use the 1982/87 vertical rally as a template for the current vertical rally that started from the November 2012 higher low bottom = For long-term investors.

* I would rather try to find a potential medium-term top and short ES - to protect my long-term portfolio - than wait for the 10% to 20% correction to happen doing nothing. OR if an Irrational Exuberance Rally actually happens, then perhaps be able to leverage my account back to 125% to 135% in order to take advantage of a vertical rally many do not expect (right now I have 10% cash as dry powder).


Trading Strategies:

With far too many possible scenarios for the medium-term; trading these markets can be fraught with peril as divergences kept rearing it's head. Sooner or later one of them might result in 10% to 20% correction expected by many traders and investors.

Which one nobody knows. The best thing we can do is to try find out which one is the highest probability by the process of elimination. Not an easy task specially for stock markets known to zig and zag for many different reasons each one of which can be interpreted several conflicting ways by each individual trader or investor.


For DayTraders: We do not care much where the seasonal wind blows into the future. We care most where it blows right now thus Trend Trading is more important than Contrarian Trading Techniques.

>> SnP500 Intraday Analysis:

This is another potential trade but suitable mostly for the best-of-breed traders since an ascending corrective pattern happens so rarely extremely few traders know how to trade it effectively and/or profitably. For some, they prefer a test of the support for entry. For others they would rather wait for a strong rally to happen which can mean they would have to enter a breakout above the last high or above the channel resistance as they start to gain a modicum of confidence.

For us EW'ers; we can always wait for intraday a-b-c pullback down to fine tune our entries and possibly reduce potential loss to the minimum. Better use 5min to 15min charts for precision entry (or for multiple entries).

The important part for majority of seasoned traders is that the markets give opportunities to enter using viable Trade Setups with an acceptable reward vs. risk ratio of 3:1 while trying to achieve win vs. loss performance ratio of 3:1 = in order to become successful on the long term basis with dozens, if not hundreds, of trades executed each year. Many traders achieve this by scanning dozens, if not hundreds, of stocks, commodities, and/or currencies in order to find as many high-probability trade setups as possible.

For me, I specialize in analyzing the major indexes. 75% of stocks will rally when SnP500 rallies and 95% will go down when SnP500 goes down.