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  • Balancing Act

    SnP500 failed to execute the Complex Intraday Rally and instead went nowhere in 6 to 10 days which can be considered either a consolidation range OR a topping pattern depending on one's interpretation of the wiggelly wiggly minor to micro waves.

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    For the more bullish EW'ers these are possible interpretation as long as no major bad news suddenly corrupt their long trades:

    >> Intraday Scenario #1: dl.shared.com/84f9yskote.png?tmp=1410397...

    >> Intraday Scenario #2: dl.shared.com/ydl692nb5z.png?tmp=1410398...

    On the daily chart SnP500 tested it's 20ma/34ma supports and the 1991 high of August 23. Today's recovery above 1991 is considered bullish by those who specialize in breakout + pullback to breakout support.

    >> SnP500 Daily Chart: dl.shared.com/elqzli6jmn.png?tmp=1410399...

    Please see previous Instablogs for the daily/weekly charts.

    Of particular importance is the Russell2000 daily chart which to date is the most common type of pattern and is therefore considered the highest probability.

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

    Trading Strategy:

    This is only a fill-in-the gap analysis and/or trading setup more suitable for the Breakout Specialists. Usually an extremely hard to trade (for me at least) but viable for those who might want to trade this run-of-the-mill trade setup. Preferably with much reduced loads compared to the August 5 Buy Setup. Not worth trading with strong conviction.

    Trading strategy usually is to buy at 3:30 pm or before closing time. Others prefer a breakout rally above today's top tomorrow.

    - If a gap up happens at the open tomorrow, then buy entry depends more on the tolerance level(s) of each trader. More often than not the gap will serve as a support;

    - If a breakdown happens tomorrow or next few days; then that is what contrarian or bear traders would love to see.

    For EW'ers; fine tuning can be achieved tomorrow if SnP500 executes a micro a-b-c down on the 15min chart with the blue support line a good entry on many cases. Stop loss is of course today's low.

    For me:

    - I sold the 1/3 SSO per last instablog before Labor Day.

    - Will keep the last 1/3 SSO buys of August 5 a 'Free Trade' with stop loss near breakeven cost just-in-case the markets actually go into an Irrational Exuberance Rally that Dow Jones' daily and weekly chart can support.

    - Bought some YM (December contract) today using the 5min chart near the bottom run as either a day-trade or a free trade depending on how strong the expected rally could be. Stop loss is now at b/e. Definitely NOT a recommendable trade for newbies or for those who do not have extensive training/experience trading the futures markets.

    Simply put. UP HERE ... I don't want to make more upside trades these days. But then a small trade here and there can't hurt much if the trend suddenly changed to the downside as long as potential losses can be controlled to the bare minimum.

    Sep 10 3:36 PM | Link | Comment!
  • The Balanced Approach

    The potential Nested Intraday Rally for SnP500 remains the highest probability with 2023 conservative nominal target and an aggressive 2060 target as of August 20. Upper Range for the uber-bulls is 2097.

    >> Spx Intraday EWA: www.dropbox.com/s/k3vgizzxmky31km/snapsh...

    For now, fine-tuning upper targets can be speculated by monitoring each squiggle as the rally progresses. A major intraday breakdown that retraces more than 61.8% of the supposedly 3rd wave will invalidate this very short-term analysis.

    The daily and weekly charts analyses remain as highly contestable as they can be ... with several different interpretations very much possible each of which cannot be proven right or wrong - in advance - since the run ups and run downs are highly indistinguishable from each other = = = typical of a complex spiral meltup as speculated in November 20, 2012.

    >> Daily Bullish vs. Bearish: www.dropbox.com/s/ip40xu2wlc3bzb1/snapsh...

    >> Weekly Conservative Scenario: www.dropbox.com/s/i3jt0goh631tl7u/snapsh...

    >> Weekly Aggressive: www.dropbox.com/s/snutmcs8jcy149a/snapsh...

    2,143 remains the Nominal Target until proven wrong.

    -----------

    Dow Jones remains the hardest to analyze on the daily and weekly charts obviously with different interpretations as it kept producing highly recognizable marginal higher highs higher lows since May 2013:

    >> Dow Jones Potential Running Correction: www.dropbox.com/s/ta1d7ugn31n0g91/snapsh...

    The potential running correction is the higher probability if strict interpretation of what constitute running corrections is applied to the Dow Jones' daily and/or weekly charts.

    Compq has a nominal target of 4553 for the v-th wave. An alternate wavecount can be speculated if the upper limit is exceeded:

    >> Compq Daily: www.dropbox.com/s/5x4zo0w32bhtavu/snapsh...

    Comp i-ii-iii-iv-v rally remains on track with an Upper Limit of 4696 if it over-performs. Obviously, if rally exceeds the maximum limit either the v-the is over-extending that can result in a sudden vertical drop OR it can transform itself into a possible Complex Spiral Meltup Rally with conservative target range of 4862/5195 and an aggressive target of 5402/5735. The basic rally is the highest probability to date - until proven wrong.

    Russell2000 MUST retrace a minimum of 61.8% if the last run down is truly an a-b-c on the daily chart. If it is a Double Zigzag down or a-b-c -X- a-b-c then I don't know what should or should not happen.

    >> Russell2000 Daily: www.dropbox.com/s/fiunc23u1bii8zg/snapsh...

    For now, better to stay with what is known but better use protective stops for those medium-term traders who decided to keep holding on to their positions based on my recommendation of buying TNA in May 15, 2014. The Triangle Scenario remains valid until proven wrong.

    Trading Strategies:

    Well ... we have four major indexes with 4 distinctly different patterns that can be highly divergent to each other. But unlike April 15/May 15 Buy Setups; those who might want to start shorting SnP500 may prove to be the right strategy as the probability of 10-20% becomes much more palatable for the contrarian bears at this stage.

    UP HERE ... Dow Jones and Compq are also actionable for the more nimble traders who wanted to go short high and cover low with well defined parameters that many traders can use to trigger a sell-short order such as the Divergence Sell Signal for Compq and/or the Upper Trendline for Dow Jones.

    For those who bought stocks/ETFs/futures as per Instablog recommendations of August 5, 2014 (or for those who still kept holding on to their bottom buys of April 15 and/or May 15) SOP Trading Strategy is to use Protective Trailing Stops if they want to speculate the markets are going to rally some more or anticipate an Irrational Exuberance Rally might just happen on the daily and/or weekly charts.

    After all, the Zweig Breadth Thrust of Feb 2014 still has 4+ months to go before it's average 25% gain should be realized, if not exceeded. Likewise, the Wide-Range-Bar of year 2013 might just result in another WRB for 2014. If SnP500 produced a rally this year comparable to the 30% last year; then higher probability a Three White Knights would form on the yearly chart with the third knight scheduled for next year.

    Anything is possible with the stock markets.

    It is how Trading Strategies are formulated that will spell the difference, most of the time, whether a trader will make money or lose money. Obviously, training and experience will win over the long run on how to navigate the seemingly infinitely different types of turbulent waves that usually will whipsaw majority of market participants - specially the newbie traders and investors.

    For me:

    I will be buying time up to Friday and will sell another 1/3 of the August 5 SSO buys. It is going to be a very long holiday weekend and traders will be more than itchy to reduce their positions before Labor Day next week. Tighter trailing stops, of course, just in case something unexpected happens.

    For now there are several potential future scenarios:

    - If an a-b-c down on the daily happens; then as a trend trader that will be another Buy the Dip Trade Setup for daytraders.

    - If a +/- four weeks run down comparable to the pink ii-nd wave on the weekly chart happens; then that is also another opportunity to swing buy the dip for another potential 4 or more weeks of rally for the pink v-th wave for the SnP500.

    - If a 10-20% correction happens, which was being expected by many market participants to happen since May 2013; then that should prove a great buying opportunity for the medium-term traders.

    - If an Irrational Exuberance Rally for this year (and next year) actually happens; then those positions bought earlier this year can become high-probability long-term investments for the more aggressive traders/investors even if a Black Swan correction, comparable to that of August/October 1987, happens in 2015/2016.

    The important part is how to formulate trading strategies in order to minimize losses, if not gain some profits, if and when those trade setup(s) do come by either one or all may prove to be wrong after all. We just have to learn how to 'roll with the punches' if any or all our analyses proved wrong.

    ---------

    I might try to go short ES in this run up - to partially protect my long-term portfolio against a possible 10-20% correction as the probability of that scenario becomes much more palatable at this stage.

    Not confident it will work but then a fire usually starts with a spark.

    Problem is - just like trying to start a fire; the stock markets usually will levitate before finally succumbing to gravity. It can mean a lot of trials and errors might be needed just like the way several sparks may fail to start a fire immediately.

    > For the early contrarian bears; they suffered a lot for more than a year now without any of those numerous Divergence Sell Signals producing a spark strong enough to start a fire to the downside.

    > For us trend traders; it has been a very good two+ years of buying the dips while the trend remains a friend.

    Someday, somehow, a correction is going to happen none of us knows for sure (yet). We can always speculate either to the upside or downside at any given moment of time. Just make sure viable trading strategies are formulated to minimize potential losses and/or to maximize profits.

    It is not necessarily the analytical process that matters the most for the more advanced traders; it is how they navigate the turbulent waters that spells the difference between success and failure.

    Aug 26 12:13 PM | Link | Comment!
  • Proactive Vs. Reactive Approach

    Compq is now at new all-time highs. As usual, Divergence Sell Signals abound.

    >> Compq Daily Bearish View: www.dropbox.com/s/zexsrgxfv86qhoh/snapsh...

    >> Compq Weekly Bearish View: www.dropbox.com/s/0f57yi8z5r8kgsq/snapsh...

    >> Compq Monthly Bearish View: www.dropbox.com/s/qoramuhfddm92c9/snapsh...

    Nominal target remains 4553 for Compq daytrade per last Instablog.

    However, the 127.2% Fibonacci Extension is a major resistance on the daily chart that makes the potential divergence sell signals on all time frames a possible triple whammy if they trigger one after another = potentially creating a cascading effect very hard to contain.

    SnP500 remains bearish until it is able to reach the double top resistance of 1991.

    Dow Jones remains the Potential Running Correction but then, if it suddenly produced a lower low then a zigzag down toward the Major Support can become a low probability since it already retraced more than 61.8% of the previous run down.

    See previous Instablog for the different scenarios.

    ==========

    Trading Strategies:

    Major indexes are becoming much more divergent against each other since May 2013 to the present.

    Usually, such highly divergent price patterns result in either a very strong rally or a vertical meltdown to synchronize them back. Other times divergences can last much longer than expected. All the time they become extremely hard to analyze thus achieving high probability scenarios become much harder over time as the patterns' divergences persist. Sometimes some high probability trade setups would present themselves but most of the time there will be no high-confidence trade setup at all.

    >> Basically, if Compq collapsed and SnP500 makes a lower high lower low on the daily the bullish scenario on the daily chart (with Spx rallying above the Wider Range Bar and SPY closing the gap down on intraday) for SnP500 can suddenly change dramatically since it has already retraced more than 61.8% of the run down. Thus ... higher probability it will be a i-ii-iii-iv-v run down with a nominal target of 1809. That is, if it suddenly collapse right now or before reaching the double top of 1991.

    At any rate; it is Compq being potentially bearish on all time frames that has to be taken with much greater consideration. More than ever in this 2+ year old bull run.

    The proactive approach is either take some or all profits off the table on daytrades as Compq approaches it's 127.2% resistance OR sell if the divergence sell signal on the daily triggers as part of SOP trading discipline when trend trading a short-term rally.

    The reactive approach is this:

    >> SnP500 Intraday: www.dropbox.com/s/c44r27u78w686wf/snapsh...

    More often than not a > 61.8% retrace of the latest leg up results in a test of the last higher low or a breakdown below that higher low. Thus, a protective trailing stop loss can be used below 1957 in the above illustration. Higher if SnP500 rallies a little bit more. At any rate, SOP trend trading strategy is always use trailing stops to protect hard earned paper profits - no matter how confident you are the rally will continue forever and ever.

    Thus, for those who might want to hold on to some or all their positions; taken in isolation, the SnP500 might just be a nested 1-2- i-ii-iii with iv-v- 3-4-5 to follow. Who knows, it might even go into a 13-waves rally on the intraday basis. Thus, it is more a matter of rewards vs. risks analysis rather than anything else for the more aggressive traders.

    For others: There are always alternatives. A balanced approach can be formulated. One of which is to sell some daytrades at or near the Compq 127.2% Fibonacci Extension Resistance. Hold the rest with tighter trailing stops; then SOP sell some more at or near the nominal target of 4553; then who knows, it might just over-perform and be able to reach the Upper Limit or perhaps even a irrational exuberance rally might just happen - thus keeping some for keeps sake can become a better trading strategy. After all, as traders, speculation is one of our specialties without which it is not possible to trade the markets as frequent and as profitably as possible.

    For me:

    - I decided not to be too greedy and forgo buying back NQ on an a-b-c down next day after the last Instablog was published.

    - I will be holding the 2/3 SSO bottom buys of August 5 as a 'Free Trade' with stop loss near breakeven just-in-case Dow Jones proved to actually be a HUGE Running Correction on the daily chart. This way, I will lose nothing and possibly gain HUGE too if an irrational exuberance rally do happen on the weekly and monthly charts OR if this 1+ year old sector rotations keep producing marginal higher highs higher lows (till kingdom come?).

    UP HERE ... Cautiously long is my mantra for the short-term to medium-term basis.

    Psychological preparations for a possible 10-20% correction remains the main defensive approach to date as SnP500 approaches it's medium-term target of 2143 on the weekly chart specified in November 20, 2012. Where and when I will start shorting ES to protect at least a portion of my long-term portfolio remains in limbo while a high-confidence entry eludes me.

    Aug 20 3:38 AM | Link | Comment!
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