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Fast And Furious

It did'nt take much prompting for trend traders to take profits off their long positions and contrarian traders to take advantage of the Divergence Sell Signal on the daily chart illustrated last July 6:

<< July 6 Divergence Sell Signal:

>> SnP500 Now:

Also, as stated in the last Instablog Compq and Russell2000 were at their major resistances which were the 127.2% Fibonacci Extension Reversal Resistance and Double Top Resistance respectively. Traders used those resistances to take profits and/or to short the markets.

Compq was able to recover today but R2K remains under heavy sell-off and/or short selling pressures.

Trading Strategies:

UP HERE ... the threat of another Major Pullback of 5 to 10% or a Minor Correction of 10% to 20% becomes much more palpable.

Those who have been left behind by this rally remain reluctant to throw in the towel (called capitulation buying) that can possibly result in an extended 5th wave rally while those who are trend trading the markets are becoming much less aggressive as the last 15 days of rally was so anemic (low volume rally) thus failing to produce an extended 3rd wave.

For the more aggressive traders the trend remains a friend:

>> Intraday Trade Setup:

With the major averages still relatively far above their daily 50ma supports; I decided to let SnP500 prove itself. The strong bounce today should convince many traders the trend is still a friend baring very bad news early morning tomorrow.

I will try to buy YM and/or NQ again as a Daytrade with today's low the hard stop loss. Will immediately use trailing stops if a iii or c up happens. More likely will just let the markets take me out, using tight trailing stops, if a strong rally happens since I don't have a high-confidence wavecount on the daily chart.

For newbie traders; daytrading an extended rally on the weekly and monthly charts is definitely not advisable. If their emotions kept winning = getting whipsawed several times OR worse holding into their positions when a major pullback or a minor correction happens can result in substantial losses resulting in the usual Buy High Sell Low trading strategy.