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

Sticks And Stones

As stated in the last Instablog; the patterns were beyond my comprehension and thus was fraught with peril to trade for lack of high-confidence analysis.

<< SnP500 Before:

The markets collapsed as the news of the Malaysian Airliners' tragedy hit the headlines together with another Israeli incursion into Gaza. But then; as soon as the initial global shocks subsided, an unexpected recovery rally followed in Friday:

>> SnP500 Now:

There is no way of achieving a high-probability EWA for the intraday patterns thus two (2) scenarios are presented for the bulls. Which one will be proven right depends more on how price actions would form if a rally happens.

Another complication is that it is also very possible the marginal higher highs higher lows pattern on the daily chart is actually a 4th wave:

>> SnP500 Daily Chart EWA:

Marginal higher highs higher lows patterns seldom happen as compared to the usual lower highs lower lows. Thus, it is much harder to analyze them for lack of practice in trading this type of pattern.

One recurrent pattern I kept noticing over the years is that shallow 4th waves usually consume much more time than the 2nd waves thus many of them result in marginal higher highs higher lows patterns before the 5th waves begin.

As long as there is at least no initial confirmation the 1-2-3-5 rally has already completed; then a 5th wave rally toward the 2,003 to 2,047 target ranges is very much possible while price actions remain in whipsaw mode.

Trading Strategies:

The price action of Friday is being heralded as another sign of 'Irrationally Exuberant' market in the last stages of it's bubble rally that is bound to collapse the way it did in 2000/02 and in 2007/09 sooner rather than later.

The way I understand it was that the Irrational Exuberance Rally of 1994 to 1996 lasted four more years before it finally topped out in March 2000. Likewise, many analysts were declaring the markets were 'irrationally exuberant' in 2006 as the subprime markets started imploding and American casualties in Iraq and Afghanistan were mounting. Yet the rally continued to October 2007 before it made a bear market correction caused by the Credit Crunch and the ensuing Financial Crisis of the Century.


I am still in the business of daytrading the markets since UP HERE ... it is a folly to start another swing trade or a medium-term trade.

The objective is to trade the trend while it lasts and possibly maximize the profits from the swing trades buys of April 13/14 and that of the May 15, 2014 swing buys.

Problem is that the patterns that kept developing are marginal higher highs higher lows that makes them highly unreliable if not extremely hard to analyze and trade.

Thus, daytrading is more suitable to the more seasoned traders and/or for the more aggressive daytraders.

Illustrated is a potential a-b-c to happen on Monday then perhaps a rally should start before the closing time or by early Tuesday. Obviously a breakdown will invalidate the bullish wavecounts on the intraday and daily charts thus extra caution should be exercise as the markets remained highly susceptible to headline news.

Majority of target ranges on intraday and daily point to the 2,014 to 2,045 range which is basically within the target range of 2,003 to 2,047 specified in May 15, 2014. Thus rewards vs. risk remains viable if SnP500 rallies to at least 2,003.

So, we better keep tab of those ranges as the vertical drop of Thursday is not the usual type of run down that should have been bought making the strong bounce of Friday hard to justify as an indication the trend is still as healthy as it gets. Hence, the title Sticks and Stones. Meaning ... no one has a decisive edge until the market decides in the next few trading days.

For me: I will try to buy YM again as a Daytrade if a slow-grinding intraday a-b-c down happens on Monday. Slow-grinding a-b-c down is the most common indication the rally is sustainable. Stop loss is obviously last Friday's bottom to reduce potential losses ... and ... to provide price actions some wiggle room below the blue major support.