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  • Proactive Vs. Reactive Approach

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

    >> Compq Daily Bearish View:

    >> Compq Weekly Bearish View:

    >> Compq Monthly Bearish View:

    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:

    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!
  • Sticks And Stones Part V

    Markets are on the roll again to the upside:

    >> SnP500 Daily:

    >> Dow Jones Daily:

    >> Compq Daily:

    SnP500 remains the bearish pattern on the daily.

    Dow Jones may or may not go into another rally but there is a very good chance it will do if the Running Correction Scenario pans out.

    Compq is expected to finalize the i-ii-iii-iv-v rally with specified targets.

    Russell2000 can be interpreted at least two ways none of which I have a high confidence thus better leave it alone.


    Trading Strategies:

    The last time the markets have four different patterns requiring 4 different strategies was in April 13 to May 15. All of them were bullish with excellent contrarian bottom buys. So I loaded up heavily and traded them accordingly.

    This time around there are still 4 different patterns but they are contradictory thus trading these markets can be fraught with peril I never before encountered since the markets rallied almost synchronously from March 2009 to May 2013.

    From June 2013 I executed only 3 swing trades and concentrated on daytrades in expectation the markets will become whippy on their daily charts as they approach their upside targets on their weekly charts. True to form I am now running out of highly viable trade setups as they become much more divergent to each other than ever before.

    Thus, the better trading strategy was/is to sell some positions then protect the rest with trailing stops just in case the rally continues.

    They should keep rallying early morning tomorrow, unless some bad news creep up before 9:30 am. There is a major 138.2% Fibonacci Extension Resistance at 1958 illustrated intraday on the last Instablog in addition to the daily 50ma Resistance for the SnP500. So better be careful than sorry.

    For me:

    - I sold the YM at 16,533 making more than 200 points/contract profits for that trade.

    - Also sold 1/3 SSO positions with 3+% profit for that portion.

    - NQ has a target of 3977 for an a-b-c rally using the 24hrs 240min chart that it should reach before the night is over. So I sold it at 3971 as keeping awake for the remaining 6 points potential profit is not worth the effort.

    - Will try to buy NQ again if it makes a minor a-b-c down on the 240min chart for a potential 5th wave intraday rally. But right now, it is not worth holding on just-in-case Spx started going down by tomorrow and continues through next week.

    I made some profits already so there is no need to be greedy in these highly bifurcated markets. But then it is not practical to turn my back against a possible strong rally if Dow Jones proved to be a Running Correction on the daily and weekly charts. Thus, I will keep the 2/3 SSO buys as a 'Free Trade'. Also, if Dow Jones make an intraday 1-2-3-4-5 rally then more likely I will be buying YM again if an A-B-C down forms by late next week at the earliest.

    Aug 14 7:09 PM | Link | Comment!
  • Sticks And Stones Part IV

    The markets rallied strongly for two (2) days.

    Impressive but not necessarily highly sustainable:

    >> SnP500 Daily:

    >> Intraday Analysis:

    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).

    Aug 12 7:15 AM | Link | Comment!
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