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Trace Lines Technique

edThe 127.2% Fibo Extension Resistance worked well for the SnP500 as speculated.   But it is still far from being proven right as the potential trend reversal resistance:


Fundamental analysts and the news media have a hard time figuring out why the markets went down on news of bin Laden's demise.   Many traders prefer not to listen to news because technical analysis tend to be 'self-fulfilling' most of the time no matter what type of news comes out.

This is one of those times that the markets went down based on good news that cannot be considered as 'buy the rumor sell the good news'.  So I will just take it for what it is rathen than try to rationalize what happened during the last 2 days.

Dow Jones remains to be the Leader of the Pack and has responded well in the past with the Trace Lines TA Technique:


Trace lines tend to be among the most abused method used by novice traders and has a low rate of success so be careful using them.

Intraday wavecounts are too confusing to be of much use at this stage.  Either the iii-rd wave is already complete thus necessitating more or less 2 weeks of pullback (consolidation range) or a melt-up is in progress and the price will simply keep going up.

There are too many possible scenarios right now thus Watch and Wait should be the best course of action.

I sold 1/3 or the SSO Swing Trade bought last April 18 when SnP500 hit the 127.2% fibo extension resistance.   I should be watching and waiting but the mouse has a mind of it's own and it bought the 1/3 SSO back today when it hit bottom:



SSO (and SnP500) is a 1-2-3-4-5 run down while Dow Jones is an A-B-C.  Therefore too hard to know whether a rally or a meltdown will happen.  Perhaps the 2 days price action will extend further into 2 weeks of consolidation range.  But the Euro$ is already primed for another 2 to 3 days rally:


ES and YM tend to follow Euro$ price actions specially during the after-hours sessions for the US markets.  Euro$ is now primed for another rally with target in the 1.5+ area.

Wed 10:30 Update:

SnP500 is now testing the Inverted Head and Shoulders Neckline support.  It came earlier than expected.


For the bulls, the neckline support is another ideal ebtry.  However, if it fails, then they are expected to scuttle the trade as fast as possible.

VIX and VXX have a 1-2-3-4-5 rally on the 15min chart.  Whether that rally is a C-wave up or a 1st wave up is hard to know since the run down is dual mode 1-2-3-4-5 or  a-b-c down for the VXX.  They still have a missing v-th wave for the 5th wave for the 1-2-3-4-5 run up on 5min chart.   Therefore, there is still a good chance for at least an A-B-C pullback down for the VIX and VXX.  A 1-2-3-4-5 meltdown is also very possible at this stage if the run up is a C-wave.