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  • Analysis Paralysis 0 comments
    Apr 13, 2014 6:55 PM

    SnP500 rallied strongly with 90% probability a 1-2-i-ii-1'-2'-3'-4'-5'-iii-iv-v-3-4-5 complex spiral meltup would happen from the April 7 intraday bottom (when viewed on the 9min chart).

    But alas, there will always be 10% probability it would fail.

    >> SnP500 Intraday Impulsive Rally before it completely failed: img10.imagefra.me/i24d/jquint84/141u_1bd...

    And indeed, SnP500 failed to sustain a fully qualified impulsive rally for the first time after an extremely long. long.. long... time. Too long I can't remember a single incidence (or a few instances) it actually failed in the last 5 years on the intraday charts. So far none on the daily chart.

    Well ... for some even a 1% failure rate can be intolerable. For us, seasoned traders; we thank our lucky stars if we can achieve more than 70% success rate on all our trades.

    ----------------

    For the Bears:

    >> Daily Bearish View: g15.picoodle.com/ltd/img15/1/4/13/jquint...

    >> Weekly Bearish View: g10.picoodle.com/ltd/img10/3/4/13/jquint...

    >> Monthly Bearish View: g15.picoodle.com/ltd/img15/5/4/13/jquint...

    Compq is considered 'broken' by many traders and a Head and Shoulders will be the next expectation among the bears whether they are daytraders or swing traders.

    For TA Contrarian Traders, their wish is the market's command - at least for the moment as the weekly and monthly divergence sell signals triggered last week for the SnP500. Whether a meltdown will actually happen remains to be seen. Contrarian bears should nurse their positions accordingly.

    The current bull run is not over-extended on the daily, weekly, and/or the monthly charts. This type of bull run is not known to just suddenly die without considerable backing and filling near the top. Rallies tend to levitate - at rarefied heights - with lots of air pockets - for prolonged periods of time before they finally succumb to gravity. Bull runs that have gone over-extended were the ones that showed sudden reversals - in majority of cases.

    Yet, there is valid cause for concern as the 127.2% and 138.2% Fibonacci Extensions are known to be either profit taking levels and/or trend reversal levels for the SnP500 on shorter time frames.

    -------------------

    For the Bulls:

    >> Intraday Bullish View: img10.imagefra.me/i44d/jquint84/141u_313...

    >> Weekly Bullish View: g10.picoodle.com/ltd/img10/1/4/13/jquint...

    A Bull Flag is a Bull Flag with 65% probability it will work over and over again. But of course; there will always be 35% failure rate.

    For TA Trend Traders; Compq and Russell2000 approaching their 200ma supports are major events for Swing Traders and Medium-Term Traders. Many of them have been waiting for this to happen in order to initiate new trades to the upside. The only problem is that heavyweight SnP500 remains well above it's 200ma support and if (and only if) SnP500 decides to go down; highest probability is that Dow Jones, Compq, and R2K will go down too.

    >> For EW'ers: img10.imagefra.me/i44d/jquint84/141u_d0b...

    That's the most consistent EWA I can come up with. Only problem is that EWA is not a science but rather a combination of science and art. Thus, the highest probability today might morph into something else later on. The important part is that there are statistically reliable probabilities we can rely on - most of the time. Thus, if something unexpected happens; we are far ahead of many other traders who do not know what to do when their trades go against them.

    ===========

    Trading Strategies:

    With Sectors Rotation in full swing; I was expecting some kind of weird market price actions since June 2013 thus I kept recommending short-term trend trading rather than swing trading and/or medium-term trading. Likewise, I do not expect EWA to be the master but rather the markets WILL be the master thus I kept emphasizing that Technical Analysis should also be given some weighing when making a daytrade and/or a swing trade. So far they did well as at least 7 daytrades proved to be highly profitable since June 2013. Those who took contrarian daytrades, in addition to trend trades, would have done far better than most. In my case, I prefer to just keep hitting the uptrend while it lasts. Too much success can lead to over-confidence.

    Likewise, I made several statements before that I would try to go short ES if and when SnP500 went into crappy or slow-grinding pullbacks up after - a strong run down. Fortunately it never happened (yet) and my long-side trades proved profitable most of the time. Unfortunately, my long-term portfolio remained not hedged and thus is highly vulnerable to unexpected major market correction.

    With those backdrops in mind; I would like to re-iterate that Multiple Divergence Sell Signals can and will result in a Trend Reversal sooner or later. However, TA Traders respect strong momentum which the monthly chart is showing. Right now SnP500 was able to reach the 77.88 RSI level comparable to that of Oct 1983 = that was followed by more rallies for a total of 251% vertical rally in 5 years starting August 1982. It can happen again this time around.

    << SnP500 Before: http://bit.ly/O2atZP

    >> SnP500 NOW: http://bit.ly/O2bqRQ

    << Critical Junctures of the 70's to 80's: http://bit.ly/1kRcDX4

    << Halleluiah 90's: http://bit.ly/1kRcDX6

    Likewise, EW'ers know that Divergence Sell Signals do appear either at the iii-rd of the 3rd; the 3rd; the iii-rd of the 5th, or the 5th itself. Knowing which is which is far more an art than a science - many times. And specially this time around with SnP500 forming a very complex spiral meltup from the October 2011 higher low bottom.

    - Nobody can really know in advance if this rally off March 2009 will become 9 waves or 13 waves.

    If 9 waves, then the Aggressive Scenario for SnP500 should happen with a possibility of +/- 20% correction in the not so distant future. If 13 waves, then an Irrational Exuberance Rally should happen with a bear market correction being delayed much later rather than sooner.

    Thus, I remained steadfast to trading the trend on the short-term basis, avoid going contrarian until a definitive 1-2-3-4-5 rally has completed on the weekly, daily, and intraday charts; and also avoid
    swing trades and/or medium-term trades. But then, a possible Irrational Exuberance Rally might happen thus it is really more of the discretion of traders whether they will position for a possible multi-year rally or not at this stage.

    But then again; as traders it is always considered prudent to try short the markets if they actually perform a crappy (slow-grinding) A-B-C to the upside = after a strong run down. Unfortunately, only Compq and R2K went down hard while SnP500 and Dow Jones remained out of synch at comparatively much higher levels on the short-term basis. Making it far harder to go short the SnP500 while the Sectors Rotation is in earnest. If SnP500 refuses to go down significantly on the daily chart; shorting the other major indexes may prove a lot harder than contrarian traders would have liked.

    There really is no reliable or high probability analysis at this time hence the title 'Analysis Paralysis'.

    ---------------

    These are possible trade setups:

    - For the more nimble traders; as long as SnP500 does not go below 1790 then it is still a buy using a Bull Flag Pattern. Preferably waiting for it to break the lower channel creating a false breakdown then recovering back up. If unable to take position(s) at or near the bottom; then waiting for a strong intraday rally, then wait again for a minor intraday a-b-c correction (or Inverted Head and Shoulders) can be the better trading strategy.

    - For the purist EW'ers; there is no buy trade here. Short-term downside trade can be recommended for the more nimble EW'ers. Watch out for 'Dead Cat Bounce' and preferably go short a breakdown below the most recent low. Then trail it immediately with a stop loss.

    - For Swing Traders; perhaps buying tech ETFs (or other tech stocks) can be a better choice. Tests of Daily 200ma Supports are not to be taken lightly even for Compq and/or Russell2000. Far too many traders depend on them. Likewise, many investors are already learning to buy on discounts after waiting for a test of a 200ma that do not happen quite often during a bull run. Many could not endure several months of waiting and just kept buying the tech sectors in the past few months.

    For me: Some of my YM Trades trailing stops got stopped out with tiny profits. The rest have hard stops that resulted in modest losses as the vertical drop of April 10 was not highly expected. Without those stops, losses could have been 'badder'. I will be waiting for opportune time in Monday or Tuesday to make another trade. Possibly with half loads this time around as I do not have a high confidence TA and/or EWA. If SnP500 decides to keep going down; then waiting for a test of it's Daily 200ma and/or Weekly 50ma Supports should be the better trade setup. Perhaps even deploying my 10% cash (dry powder) toward a Swing Trade to the upside.

    Done: 11:25 pm.

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