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Somewhere Over the Rainbow

In April 2, I posted 'Chasing Rainbows' with a definitive chart pattern that must be followed otherwise scuttle the trade on anything but.  It was appropriately followed by grave warnings such as the LSD-inspired 'Lucy in the Sky with Diamonds' by the Beatles and the Potential Inverted Head and Shoulders Scenario (which was the high probability scenario long before Chasing Rainbows presented itself).

After that was the highly complex either Expanding Triangle or Terminal Triangle Scenarios that until now I simply can't qualify which one is the right pattern.  The Potential Poisoned Pudding was also discussed with an expected a-b-c rally after the i-ii-iii-iv-v run down despite the strong Fibo Confluence of Supports for ES at 1300 level on the 240min chart.

Along the way, I made a series of Guerilla Trades to possibly capture potential low-probability swing trades as they materialized (but scuttled them immediately for tiny profits when the run ups proved less than ideal);  and also some Intrepid Trades to take advantage of strong supports such as the fibo confluence of supports and/or stupid mistakes by the bears such as producing a c-wave instead of a 3-rd wave down (c-waves can be identified against 3rds most of the time by their structural differences.  Too complex to discuss the differences here).

Vertical rallies that approaches the Double Top Resistance without making a consolidation phase before attacking the Resistance will fail in more than 80% of the cases.   While a small i-ii-iii-iv-v rally that produces a potential a-b-c pullback as the 2nd wave when it is closer to the Double Top Resistance will have far greater chance of breaking the Resistance and sustaining itselft toward a 1-2-3-4-5 wavecount.

That is the case for the SnP500 and Compq which were able to form a-b-c corrections after the initial vertical rally off the March 16 intermediate bottom:



Dow Jones is the Leader of the Pack and must be given due attention:


Dow Jones reminds me of the very old song 'Somewhere Over the Rainbow' since it is already 'over' the top of the pattern headed practically to unknown targets to the upside since it's pattern differs
significantly from SnP500 and Compq.  Indu is a potential Type II rally withe the 1st wave the longest while SnP500 and/or Compq are qualified for either a Type I or Type III rallies wherein the 3rd or 5th may become the longest wave by virtue of their a-b-c downs or the 2nd wave retracements.  Indu retraced  a tiny bit more than 38.2% of the 1st wave rally while Spx and Nas retraced more than that which in turn qualified the latter two for far bigger and longer lasting rally potentials than what Indu can achieve at it's current form. 

One way for Indu to morph into a Type I rally is to form a running type correction wherein the higher low (of a higher high higher low pattern) will become the 2nd wave instead of the lower low as indicated on the chart.  But that is a low probability scenario at this stage.

Don't know what will happen next since the wavecount from the July or August 2010 bottoms will become a potential corrective Double Zigzag UP if SnP500 is able to rally 1-2-3-4-5 toward 1475 far exceeding it's maximum allowed run rate of 1419.  But then again, too early to speculate but not too early to trade the initial run up that has already happened last week.

I sold the remaining 1/3 SSO Swing Trade of March 16 when it hits the Double Top resistance of $54.46 on the daily chart.  Still holding the New SSO Swing Trade bought at $51.06 at the April 18 bottom.

Sold the YM Intrepid Trade (bought at 12,072) near the 30-min a-b-c rally target of 12,213.   A huge tactical mistake since I was not able to establish a position for a YM Swing Trade.  Will try to get a YM Swing Trade position if it makes a minor a-b-c pullback this week.

Good Luck.