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  • Sticks And Stones Part IV 0 comments
    Aug 12, 2014 7:15 AM

    The markets rallied strongly for two (2) days.

    Impressive but not necessarily highly sustainable:

    >> SnP500 Daily: www.dropbox.com/s/a8692iuyl58fkdp/snapsh...

    >> Intraday Analysis: www.dropbox.com/s/4vsbro7j6ggk99c/snapsh...

    Spx went down to the dot toward the Quick and Dirty Target of 1904. Fine and dandy and a pullback up toward the 1953 Major Resistance or the 50ma Resistance is the next expectation.

    However, the intraday chart bottom section pattern does not support a 1-2-3-4-5 run down illustrated in August 4 but rather a potential 1-2 -i-ii-iii-iv-v -3-4-5 complex spiral meltdown is supported by the A'-B'-C' run down. Spx should have rallied right after bouncing off 1911.45 but instead produced a qualified B' up followed by a lower low. Definitely not a typical 5th wave down.

    =============

    Trading Strategies:

    The very purpose of Elliott Wave Analysis is to deferentiate impulsive waves against corrective waves immaterial of price direction. Thus run ups can be impulsives or correctives. Likewise, run downs can be impulsives or correctives.

    Highest probability is that impulsives will be sustained after an a-b-c retrace while correctives will be reversed and should result in a i-ii-iii-iv-v run. Except of course for for complex types of correctives such as flat + double zigzag combination either to the downside or the upside.

    The intraday chart clearly shows that the analysis of August 4 should be questioned at least rigorously and thus it is practical to at least modify the trading strategies illustrated in August 4 to account for the higher risk of trade failure.

    One redeeming factor that should also be considered is that the red 1-st wave does not fully qualified a a micro i-ii-iii-iv-v but rather as a micro a-b-c down. Thus, the A'-B'-C' down at the bottom section can be a much bigger reflection of the potential a-b-c down at the upper section. Perhaps too big but still acceptable within the 2.618x of time consumption which is the maximum tolerable for corrective patterns. Obviously, this type of analysis is being promulgated by some analysts, not necessarily EW'ers, that may require some degree of consideration as no single market analytical tool can be proven 100% correct. Each to his/r own.

    For me:

    I am not familiar at all with those types of patterns wherein the upper portion is an a-b-c and the lower portion is also an a-b-c. Much less with such approximately 2.618x size of the bottom section run against the top section run down. Thus, I am treading an uncharted territory where any short-term decision I make will most likely be the wrong one for lack of experience in this particular pattern.

    I bought YM and NQ near the 5th nominal target illustrated last August 4. Added some SSO as I cannot resist the temptation of counter-trading a potential 1-2-3-4-5 run down right to the T. The lower low run down in Thursday was halfway expected that I decided to hold on with slightly below 1903.96 my stop loss. The problem is I don't know how to trade this paticular pattern using EWA and am now dependent on TA Divergence Buy Signal on intraday and daily charts for entry but not for final direction.

    Saving grace is that the markets rallied for at least two days.

    >>> As the saying goes: 'Don't look a gift horse in the mouth'.

    These are now my Revised Trading Strategies or Plan B:

    - I will be selling YM immediately if it goes toward the 16,637 i-ii-iii-iv-v nominal target on 2584tick chart (I use the tick chart to reduce wavecount confusion during after-hours trading sessions) with a very tight stop loss just in case YM fails to go toward 16,637 early morning session.

    - Will still use wide-trailing stop for the NQ daytrade as Compq remains highly viable as a daytrade with nominal target of 4553 for the v-th wave illustrated in Aug 4.

    - I decided to use SSO as daytrade + swing trade combination. Thus, there is no need to drastically change the game plan for SSO. I will sell 1/3 positions immediately. Sell another 1/3 if an a-b-c run up happens as speculated in August 4 or until it's obligatory trailing stop triggers. And keep the last 1/3 as a 'free trade'. Free Trade = no timetable for holding the position but with protective stop loss at breakeven.

    For us traders; preventing losses is more important than making money. Profits will simply come by effortlessly as long as we follow the higher and highest probability scenarios and protect ourselves against excessive drawdowns that can cripple our trading account(s).

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