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  • In The Eyes Of The Beholders

    The markets can be bullish or bearish depending on one's perception most of the time. There are a multitude of tools used by analysts and traders thus it is very common they will have many different ways of interpreting the market price actions at any given moment in time.

    For us traders we try to be neutral most of the time and wait for run-of-the-mill setups and high-probability entries using basic TA such as supports/resistances and/or momentum divergences. For many successful traders; their major assets are 1.) Patience and 2.) Discipline. Patience until a high probability trade is offered to them; and discipline to execute the trades according to well tested trading strategies.

    Others use more complex methods such as Fibonacci Sequences or confluence of supports/resistances to improve the odds of success.

    One Master Trader (I used to subscribe in the past) can determine confluence of supports/resistances within one (1) or two (2) ES points days, and sometimes weeks, before at least a strong bounce/pullback happens. Often times before a trend reversal happens using Gann Method, Fibonacci Sequences, and EWA as primary tools.

    To each his/r own.


    For EW'ers it is almost always price structure that matters.

    >> Dow Jones Breakout Mode:

    >> SnP500 Potential Terminal Triangle:

    >> Compq Potential Bear Flag:

    >> Russell2000 Divergence Buy Setup:

    We have four major indexes each of which have different patterns and can be interpreted numerous ways depending on what type of analysis is employed.

    With the help of TA, Swing Traders were able to make precision entries in October 9 and Feb 6 for the Dow Jones. SnP500 presented a viable buy setup in April 13 that proved to be high precession entry. High confidence entries were also presented by Compq and Russell2000 in Oct April 15 and in May 16, 2014.

    - With correct entries half the battle is already won.

    - What's needed now is a follow-thru impulsive rally for the next stages of 1-2-3-4-5 rally to materialize for Dow Jones (or i-iii-iii-iv-v for Compq on the Daily Chart). See previous Instablog for SnP500 upside targets.

    For conventional TA: Dow Jones Triple Top Breakout should prove to be strong and sustainable for quite some time since it was able to consolidate for quite some time as well.

    For EW'ers: SnP500 is a Potential Ending Diagonal or a Terminal Triangle thus it can either be the termination of a iii-rd or the 3-rd when viewed on the weekly and/or monthly charts and a corrective fourth wave is expected with a 10-20% correction expected to happen sooner or later.

    Compq is two faced: It can be another successful Swing Trade using the daily 200ma Support for the bulls OR a potential Head and Shoulders as well as a Bear Flag for the Bears.


    Intraday charts for Dow Jones, SnP500 and Compq also have some minor to major differences thus it is not possible to have a high degree of confidence on the final rally outcome.

    For now, Compq intraday pattern has a higher probability to be the correct wavecount:

    >> Compq Intraday EWA:

    Compq has a bearish equal move target of 4267 on the daily chart from the April 15 bottom. Intraday targets for the most recent i-ii-iii-iv-v run up are as specified. Whether it will become a C-wave up or a 3rd wave up on the daily remains to be seen.


    For swing traders and medium-term traders; it is almost always practical to try an entry when the major averages test their daily 200ma supports. More often than not, they will result successful trades.


    There were three major potential scenarios I was able to come up with last November 20, 2012 (see Fiscal Cliff Crisis = Opportunity Instablog). As of May 22, 2013 a Super-Duper Scenario for Russell2000 was included (see Long-live the Queen Part II Instablog).

    For now, it is better to concentrate on the two highest probability scenarios to reduce the possibility of 'Analysis Paralysis'.

    >> SnP500 Weekly Bullish View:

    >> SnP500 Weekly Bearish View:

    For the SnP500; the medium-term EWAs of April 13, 2014 remain viable after two months of fits and starts with extremely complex patterns forming on the intraday charts.

    Nothing has changed for the weekly charts thus the daily 200ma buys of Oct 9, 2014 and Feb 5, 2014 for Dow Jones and possibly the May 15, 2015 by for Compq remains viable swing trades or medium-term trades to the upside (until proven wrong). Likewise, Russell2000 is a 'better late than never' potential Swing Trade or practically a Medium-term trade as Divergence Buy Signals signals seldom happens during a bull run and thus are enthusiastically bought by majority of swing traders and medium-term traders as another trend trade to the upside with potential week/months of holding periods.


    For the Medium-term Bears:

    When analyzing price patterns using Fibonacci Sequences, there are very important resistance levels to consider:

    >> SnP500 Monthly Bearish View:

    The 127.2% and 138.2% are considered Contrarian's Entry Levels that in many cases result in a trend reversal.

    However, since the supposedly New Super-Cycle Degree Rally has just started from the March 2009 bottom; those levels may prove to be 'Profit Taking' levels which in many cases can result in a re-test of the breakout level which in this particular case is the 1576 for the SnP500. A strong rally above the 138.2% usually is considered an 'Escape Velocity' thus we have to closely monitor how SnP500 performs in the next few months.


    Trading Strategies:

    Four Major Indexes = Four Different Patterns = Four Trading Strategies?

    For many traders; analyzing one major pattern alone can be extremely hard at times. With four divergent patterns, it can be a nightmare.

    For me, I use what I have trained for in the past. Thus, when SnP500 and Dow Jones presented a potential C-wave down in April 13, 2014; I bought YM and SSO as Daytrades and Swing Trades. Likewise, when Compq offered a high probability entry in April 15; I bought NQ as a potential Swing Trade. When Russell2000 gave a 'yummy' Divergence Buy Signal in May 15; who am I to refuse such a very good offer for another Swing Trade to the upside.

    However, since I kept using the 127.2% and 138.2% Fibonacci Extensions to countertrade a prolonged sell-off in the past on intraday and daily charts (and in many cases to take at least some profits off the table after a good run up on daytrades and swing trades). Thus, I developed a healthy respect for those levels over the years.


    For me, at least, these are my trading strategies:

    1.) Compq is either a i-ii-iii up or an a-b-c up on the daily chart with the A-B-C up having an edge. Thus, I will be selling the NQ buy of April 15, 2014 at or near the Compq's equal move target of 4267 in the next few days as illustrated on the Daily and Intraday Charts. Will use tighter trailing stops just in case it fails to finalize a i-ii-iii-iv-v on the intraday.

    2.) Since Dow Jones is a typical bullish breakout pattern that trend traders love to buy; then I would rather use trailing stops for the Swing Trade buy of April 14, 2014 but will tighten it in order not to lose more than 50% of paper profits (just in case DJ decides to collapse instead of rallying);

    3.) SnP500 is a potential bearish ascending wedge or a 3-push ups for TA traders on the daily chart - otherwise known as Terminal Triangle or Ending Diagonal for EW'ers. It is a 'yummy' countertrade for the bears. Thus, it is advisable to at least try shorting SPY or SSO at or near the upper resistance level of 1920 to 1925 if SnP500 decides to keep rallying in the next few days.

    - I am still holding 25% of SSO Swing Trade bought in June 24, 2013. It is already a year old swing trade and should have been terminated long ago but I simply can't find an ideal exit as SnP500 kept producing bullish patterns in at the last several months - till now. The 1915 to 1930 intraday target range seems to be the most appropriate to close this trade;

    - Will still keep the Swing Trade Buy of April 14, 2014 but will trail it accordingly in order to make at least some profits if SnP500 decides to collapse.

    - Will try to go short ES at or near the Daily Upper Resistance to protect at least 1/3 of of long-term portfolio against a possible 10-20% correction.

    4.) I bought TNA at $62.02 as a potential Swing Trade in May 16 intraday a-b-c pullback down (using the 5min chart). But if Compq decides to go into a sell-off on the daily; then highest probability Russell2000 is going to collapse. Thus, I will be using a trailing stop at break-even + some tiny profits.

    For those who made bottom fishing buys in October 2011 and/or June/November 2012 as medium-term trades; I have stated in my Instablogs that if SnP500 produce a i-ii-iii-iv-v cycle-degree rally on the monthly chart, then highest probability is that we will never see those higher low bottoms again within our lifetimes.

    >> SnP500 Long-Term EWA + TA:

    Thus, it is highly recommendable to keep at least a major portion of those positions as long-term investments. Right now, SnP500 has at least 90% probability it will actually result in a Cycle-Degree Impulsive Rally = the first requirement in order to execute a Super-Cycle Degree Rally that may last 17 to 26 years from the March 2009 Significant Bottom. What's needed is a iv-th wave correction in order to finalize the i-ii-iii-iv-v rally on the monthly chart.

    Note: My web links for charts kept getting 'trashed' for sometime now with warning errors (backup errors?). I don't know what's causing this since the files in remain intact. I use IE and FF with same results. Could be SA's server trashing the files. I kept uploading the files and reposting the charts but they kept being trashed.

    Print the charts (whatever are available online) if you want to keep them rather than depend on on-line storage. Or save them as .png files.

    May 28 8:07 AM | Link | Comment!
  • Tepper Tantrum

    Markets went down based mostly on the recommendation of David Tepper:

    >> SnP500 Intraday EWA:

    >> SnP500 Daily TA:

    >> Compq Daily TA:

    >> Russell2000 Daily EWA + TA:

    On the intraday chart; the vertical meltdown of the past 2+ days practically has no subdivisions for the iii-rd wave. In majority of instances it is a C-wave down and a new rally would follow. However, if (and only if) SnP500 rallies grudgingly in the next few trading days, then it will be interpreted as a corrective a-b-c up that should result in more run downs.

    Note that the most recent intraday i-ii-iii already has the iii-rd wave over-extended when viewed on the 15min chart; thus, it is very possible the v-th might truncate OR the iv-th and v-th might not print at all and a sudden upside rally might happen tomorrow.

    On the Daily Charts; we have 4 major indexes with SnP500 and Dow Jones practically same higher lows patterns with minor differences since May 2013. Compq and Russell2000 have diverged greatly from SnP500 and Dow Jones for the past 12 months and are now the targets of Sector Rotations.

    Compq Head and Shoulders pattern (for the bears) remains unresolved. Likewise; Russell2000 diverged with the three major indexes by producing lower lows in the past few trading days while Dow Jones just made a new higher high 3 days ago.


    Trading Strategies:

    Mr. Tepper has good reasons to be very cautious right now as the divergences between the performances of SnP500 + Dow Jones vs. Compq + Russell2000 became apparent for all eyes to see.

    This type of divergence can easily result either in a massive vertical rally .. or .. a massive vertical meltdown to synchronize them back. Put it more succinctly "Damn if you Do; Damn if you Don't" for medium-term traders and investors.

    I have been giving the same 'CAUTION' recommendation since May 2013 as SnP500 becomes a potential iii-rd wave on the monthly chart with 1823 to 1923 the potential Profit Taking Levels ... OR ... the Contrarians' Reversal Resistance Levels. Thus, I slowly raised 10% cash as SnP500 approached the 1849 level. See May 22, 2013 for the four (4) Potential Scenarios for SnP500, Dow Jones, and Russell2000 as they produced minor divergent patterns in May to Nov 2012 ... and ... expected to produce major divergences as the medium-term complex spiral meltup rally progresses (on the weekly chart).

    SnP500 is now in the 127.2% to 138.2% Fibonacci Extension Levels (1823 to 1923) measured from the March 6, 2009 bottom. See previous Instablogs for the Monthly Bearish Views for SnP500 and Dow Jones.

    Likewise; SnP500 produced a 261.8% Fibonacci Extension from the October 4, 2011 bottom with 1849 extended target. See my November 2011 Instablog regarding the 1666 2x nominal target for the Positive Reversal Buy Setup on the monthly chart. 1849 is the extended 2.618x target using Fibonacci Extension Method from the Oct 4, 2011 bottom.

    Those are very important resistance levels that medium-term traders should at least take partial profits off the table. At least for those who initiated their trades in October 2011 and/or June-November 2012 bottom buys. See my October 4, 2011 Instablog and/or the June-November 2012 bottom buy recommendations and their upside targets.

    - Bag in at least some profits off old trades.

    - Make a new swing trade or another medium-term trade if you want to keep trading the current bull run on the medium-term basis.

    Far easier to know risks/rewards on new trades than trying to decipher how to protect old positions from highly unpredictable bear market corrections.

    Don't sell everything since it is far easier to hold successful old positions than the most recently acquired ones that are still highly susceptible to whipsaws.

    Those who started their full-bore long positions in 2013 or later have lots to worry about. They were NOT the early birds and are the ones most afraid of another bear market correction. Like David Tepper?


    We live for today and tomorrow is another challenge.

    For Daytraders; we don't care much where the market goes for the medium term; the important part is that as long as SnP500 remains in higher lows higher highs then The Trend is the Friend.

    Thus, we just have to wait for buying opportunities such as the one being offered by the potential C-wave down on the 120min chart by countertrading the run on shorter time frames such as the 15min or 30min charts or chasing it up at the early stages of a potential intraday rally - preferably by buying a minor a-b-c down on 5min chart after a minor strong bounce up.

    Out task is to quantify and qualify what will happen next:

    1.) If SnP500 suddenly goes down far longer than the maximum v = 1.618x of the i-st then the current intraday meltdown can become a Spiral Meltdown. Thus we have to set our stop loss below the 1.618x run down to prevent substantial trading loss;

    2.) If SnP500 rallies with fits and starts (slow-grinding) rally in the next 3 to 4 trading days without breaking new highs; then it is more likely a corrective A-B-C up on intraday and further run downs should happen. Then the better trading strategy is to just take as much profits as we can. Wait for another opportunity ... or ... we may even switch side and become Bear Traders if the probabilities favor another downtrend or a bear market correction; and

    3.) If SnP500 rallies strongly in the next few days. Well ... that's what majority of traders and investors can't help but to chase for fear of being left behind. Let them give us more paper profits in the short term basis. We will take bankable profits at or near major resistances and/or at the conclusion a 1-2-3-4-5 rally on the 120min chart. Nominal Target for a 1-2-3-4-5 intraday rally is 2003 with Upper Range of 2047 measured from the April 15 bottom. We trail paper profits on successful trades for as long as possible tightening them as SnP500 approaches the nominal target. Taking partial profits off significant resistances - illustrated on the 120min and daily charts - depends more on trader discretion.

    Those are just SOP Trading Strategies I apply to majority of my short-term trades. Trading is what it is. Plan the trade then trade the plan. No Fuss No Muss.

    Likewise, for swing traders; Compq successful test of it's daily 200ema Support is a positive potential trade to the upside. Those swing traders who bought the Dow Jones' 200ma test in Oct 09, 2013 and/or the Feb 05, 2014 test are now in the money. The 200ma is a favorite major support for swing traders. It does not work all the time but during bull runs, it works most of the time.

    Russell2000 is a 'yummy' Divergence Buy Signal on the daily chart. The last time Russell2000 produced a divergence buy signal was in August 30, 2013 which proved to be an excellent swing trade to the upside. Prior to that was the divergence buy signal of June 4, 2012 that resulted in an excellent medium term trade to the upside. This type of medium-term counter trading has high probability of success thus many traders prefer to play the probability game in as many trade setups they can find.

    Russell2000 has an acceptable 1-2-3-4-5 run down which may or may not be an impulsive type. Thus, it may not result in a new higher high rally but at least can provide palatable profits if R2K forms an A-B-C corrective rally in the next 2 to 3 months comparable to it's 2+ months of slow run down. Just be very careful on this one since Compq HnS on the daily chart might suddenly trigger dragging R2K down faster than many contrarian traders can expect.


    One particular troubling case at this juncture is that Russell2000 and Compq are in direct divergence against the SnP500 and Dow Jones who are making new highs being caused by the massive Sector Rotations that have been going on since April 2013.

    One that has to be taken into consideration but not necessarily a good reason to stop trading the markets as it is another one of those 50-50 probability of another vertical rally or vertical meltdown scenarios. Nobody really knows how long those divergences can last. The longest divergence I know was in 1974 to 1982 when Dow Jones was dying unable to compete against Japan Inc. while Compq was rallying vertically like crazy with more than 700% gain in 8 years.

    Another possible 'Monkey Wrench' is the Potential Bearish Ascending Wedge that may or may not form on the SnP500 Daily Chart. Right now; it is not worth being a 'knee jerk' while the pattern in still far from being formed for at least a few weeks. We just have to be aware of potential supports and resistances in advance. Just try not to create mountains out of molehills. Let the markets decide for us.

    Which of the bullish vs. bearish scenarios will eventually pan out is not for us to predict. We trade based more on well tested trading setups and/or high probability scenarios rather than speculate on the highly unreliable predictions by the media-centric analysts and neophyte traders/investors.


    Trading opportunities do appear at bottoms; at the middle sections; and near the tops of bull runs.

    - Just make sure to use hard stops right after entry and use trailing stops once initial rallies started to happen if you happen to be a trend trader as the risks of a trend reversal become larger as the bull run progresses.

    Trend Trading had proven to be more profitable than Counter Trading specially during bull runs. Only a few of bear traders have the skills, patience, and discipline to be able to eke out profits counter trading a bull run.

    More often than not, bull runs persisted longer than majority of contrarian bears could possibly anticipate - or as the saying goes in recent times: Irrational Exuberance Rally can last longer than what the trading accounts of early contrarian bears can survive.

    - Case in point was the persistent contrarian bear calls of 1994 to 1996. SnP500 rallied 256% from 1994 and 156% from 1996 to the March 2000 top.

    Contrarian Bears would later gloat of their victory in 2001 to 2002 Bear Market Corrections but many of them suffered greatly during the 1994 to 2000 Irrational Exuberance Rally. Extremely few bears would survive such rally if they kept holding on to their short positions.

    Same happened during the 5 years Bubble Rally of 1982 to 1987.

    Those contrarians who kept calling the vertical rally of 2013 a Bubble Rally missed the point that Bubble Rallies usually have at least three (3) vertical sub-rallies. See my latest comments for illustrations of past Bubble Rallies.

    But traders are traders. We almost always are highly protective against possible trend reversals. Thus, even if trend trading is highly profitable; there will almost always be pitfalls in becoming over-confident the trend will remain our friend forever and ever.


    For me:

    - My YM Buyback of May 07 proved to be a successful daytrade as it produced i-ii-iii-iv-v rallies on the 30min chart that lasted for 5 days of rally (an a-b-c rally when viewed from the May 7 higher low bottom using the 30min chart but a very complex a-b-c up when viewed on the 120min chart from the April 28 higher low bottom). It was not very successful as I decided to use trailing stops instead of selling it at the top run of the 5 days.

    - Will try to buy YM again if Dow Jones and/or SnP500 make a divergence buy signal on the 15 to 30min charts. OR ... if they suddenly make a strong intraday rally on the 5 to 15min charts, then waiting for a minor a-b-c down would be the next option.

    - For the SSO buys of April 14, 2014; I already sold the Daytrade portion in April 29. Still holding the other half as a Swing Trade with stop loss near the $100.16 buy level. Still holding half the YM buys of April 14 and the NQ buy of April 15.

    - Still holding 25% of SSO Swing Trade buys of June 24, 2013.

    - Still holding 25% of SSO Medium-Term bottom buys of June and November 2012;

    - Still holding 1/3 of SSO Medium- to Long-Term buys of October 4, 2011.

    Note that I usually go 125% to 155% leveraged account during bottom fishing expeditions with the 35-65% as short-term to medium-term trades. Then go back to 90% (which is the long-term portfolio) selling those short-term to medium-term positions as the rally progresses - or if their hard stops and/or trailing stops got triggered.

    Guess, I'll have to keep the remaining SSO buys of Oct 4, 2011 and the June/Nov 2012 bottom buys as long-terms with my current 10% cash position as of Jan 2014.

    If a bear market correction becomes a high probability; then I would rather go short the ES futures to protect my portfolio. The 10% cash is just for the sake of 'peace of mind'.

    May 15 6:43 PM | Link | Comment!
  • Catch Me If You Can

    Since April 24, SnP500 has been whipping around using an intraday Inverted Head and Shoulders similar to what Compq did then made an attempted rally:

    >> Compq Head and Shoulders on Daily:

    >> Compq InvHnS:

    >> SnP500 InvHns Intraday:

    >> SnP500 Cont Inv HnS on Daily:

    There are many ways to skin a cat for TA Traders.

    For the bears it is obvious their Divergence Sell Signal for Compq worked quite well and many profited by it by covering some positions as Compq tested it's major 200ema Support.

    Likewise, early bird bulls were able to take advantage of the Daily 200ema support, right off the bat, in April 15. And presumably have already taken some profits off the first or second red bar that appeared in April 23/24.

    For intraday traders it is obvious there are far more patterns that the bulls and bears have been playing. Those intraday patterns are also very useful for Daytraders for precision entries/exits.

    That's just the name of the game. Seasoned traders are usually not perma-bulls nor perma-bears. They know how to play the game and the bulls will give the ball to the bears when the probability of the market to go down becomes imminent. Likewise, bears know their limitations thus it is almost always a safe play to take partial of full profits off the Daily 200ma Support (Tech traders favored the ema in this particular case).

    >> Compq 30min Chart Bull Flag:

    Right now, Compq is 'Good to Go' for the very short-term trend traders with a mini Bull Flag on the intraday chart.

    Trading Strategies:

    I was trying to post this Instablog before the open (or before the e-minis rally). But right now ES, YM, and NQ are rallying before I can post. Thus higher probability the cash markets will open with a minor gap up on the 15min to 30min charts UNLESS some bad news appears at 8:30 a.m.

    Thus, for those who would like to chase this rally off the April 15 bottom for Compq; SnP500 and/or Dow Jones; buy strategy is usually during a gap up in the cash markets such as for SPY, DIA, and or QQQ. Most of the time the gap becomes the support. Stop loss is of course yesterday's low. Avoid Russell2000 as it is the one being heavily shorted.


    This is a heads up for those who were not able to buy in April 14/15 and/or in April 28 as Compq formed an Inverted Head and Shoulders as illustrated in my Comment of that date.

    As the title says: Catch Me If You Can. A mini-Bull Flag on the 240min chart is perhaps the last buy on mini-pullback down. After that, those who would like to chase the rally will more likely end up buying on breakouts.

    For me: I was not able to sell some YM positions in April 24 as DJ and SnP500 suddenly went down with a potential truncated v-th wave on intraday charts. Instead I sold some on intraday a-b-c up in April 29. For now, I bought the YM back yesterday after the close with very tight stop loss. Sold some SSO in April 24 but decided not to buy it back.

    10:30 am Update:

    TNA, together with QQQ, went into a mini-flash crash right after the open. DIA and SPY and SnP500 tried to hold on to their gap up but later went down in symphaty to TNA and QQQ.

    This trade is another one of the 35% Bull Flag Failure Rate. At least for Intraday Trend Traders. For Daytraders who bought the April 15 bottom; the trade remains viable until proven otherwise.

    - SPY is now a potential 'bigger' Bull Flag on the 30min chart as it re-tested the Daily 50ma Support with minor penetration. Those who might still want to use the bigger Bull Flag for SPY may do so. If a strong bounce happens on the 5min chart happens; then a slow-grinding a-b-c down would be the ideal buy strategy. Preferably if SPY forms an Inverted Head and Shoulders on the 5min chart = to minimize potential loss just-in-case Yellen's testimony becomes bearish harbinger to many traders.

    - The 5 to 7 days rally off April 15 is being consolidated for 9 to 11 days now. 7 days rally for EWA with truncated v-th wave on intraday, 5 days for TA traders. Thus, SnP500 should be rallying sooner rather than later. A prolonged consolidation range can make it extra heavy and many trend traders might just abandon the trade for lack of action.

    - Note that if SnP500 and/or Dow Jones kept re-testing their daily 50ma supports without going into a strong rally; more likely those supports are going to fail. Thus, protective stops are necessary. For now, Daytraders are still in the go-no-go situation as SnP500 and Dow Jones whipped around.

    Compq is definitely not a good buy right now together with Russell2000 - at least on the intraday charts. Unless they show considerable strenght.

    For me: The YM I bought yesterday's after hours proved to be a failed trade as the trailing stops triggered with tiny profits. I bought it back as Dow Jones made a minor false breakdown on the 15min chart AND as ES made a touch down to it's 120min 24-hr Bull Flag Support. Now using trailing stops in order not to incur losses.

    >> Dow Jones Intraday NOW:

    >> ES Intraday Bull Flag:

    Definitely not an easy trade trying to catch this rally 'while I can'. At least for the YM Buyback Trade.

    May 07 8:26 AM | Link | Comment!
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