Traders are now looking closely at the daily 200ma as their last hope support:
Compq is the Early Bird Setup:
Ideally, a compromise setup should happen wherein the Compq breaks down a little bit below; the SnP500 touching; and the Dow Jones staying above their 200ma supports.
But since I cannot dictate what should or should not happen, wait and watch should be the more prudent approach. If an early rally happens, then perphaps going for it might prove very rewarding, rather than frustrating, for the active traders.
For the SnP500: A bounce rally must retrace to at least 1314.80 to give an early indication that the 1-2-3 run down from the April high might become another Failed 1-2-3 (or an a-b-c with elongated c-wave) for the Triangle Scenario. Remember that a 1-2-3 setup with the 3rd extended has 90% success rate of forming the 4th and 5th waves. When the 10% happens, it usually results in a triangle formation with the failed 1-2-3 as part of the triangle.
1344 remains to be the Major Short-term 'tested' Resistance while 1385 is the Major Medium-term 'not tested' Resistance.
Major Medium Term Support is the 1236 to 1218 levels if a 1-2-3-4-5 run down happens with the daily 200ma at 1254 thrown into the mix if a failed 1-2-3 run down happens - all untested to date.
Major support for the Dow Jones is the 11,750 level set in year 2000 just in case INDU tries to keep going down in the next few days. NQ has broken below the monthly chart 2256 level that keeps tech traders on the defensive mode. NQ will have to re-break above 2256 in order for traders to support another rally. Compq, practically, is responding to the double top resistance of 2861 set in year 2007. Major support is either 2557 or the April 2010 high. Likewise, Russell2000 is practically responding to the 2007 double top resistance of 856.47 set in year 2007 on the monthly chart.
Spx is now testing the major intraday short-term fibo-extension reversal level of 1265.71 or 138.20% extension on the 120min chart:
Again, a 'safer' entry is if SnP500 is able to re-mount (with credible force) the 1294.70 intraday resistance.
Below the 1265.71 level and the bears are supposed to be gunning for the 1247.80 and 1218.82 major fibo extension levels. Suitable for fibonacci traders who prefer to buy bottoms using the fibo extension reveresal levels - more effective during a prolonged rally or selloff but less effective inside a trading range (on the daily chart).
Remember July 2010 to Feb 2011 prolonged rally got 'reversed' for either a pullback or a meltdown on the daily and weekly charts at the 1369.91 fibo extension reversal resistance level (127.20%). It is NOT a 'reversal' per se since the pattern is an a-b-c up rather than a i-ii-iii-iv-v subwave for a 5th wave rally from the March low. It is more an indication of a potential pullback either that of an Expanding Flat, a Running Correction, or a Triangle. The Triangle Scenario happens to be the highest probability in this particular case since the initial a-b-c run down was a failed 1-2-3 selloff. Otherwise the Expanding Flat Pattern should have been the highest probability scenario with the 1218/20 as the major support.
That was the main reason why I sold all SSO Swing Trade buys of March 16 at or near the 127.20% Spx level and used the April 18 SSO buys as a 'Free Trade' just in case an unexpected rally to either 1385 or 1475 actually happens. The other trades were more or less daytrades or scalp trades using what I call Intrepid Trades since they have low probabilities of trade success but with high probability entries for at least a bounce. If any of those bounces morphed into a rally, so much the better and I would be holding at least half of the buys for a swing trade.
I bought YM again today at 11,898 (Sept contract) using the divergence buy signal on the 30min chart. The previous YM Intrepid Trade proved to be a failure that resulted in minor losses.
Every time the a-b-c run down (or failed 1-2-3) pattern followed by a higher high (false breakout) a-b-c rally happens; I cringe at the possibility of breaking my mind mad and/or driving my trading account to the ground due to the seemingly endless ways the markets can whipsaw the active market participants in so many frustrating ways. That is why I kept repeating that the markets are/were not suitable for beginner traders since they are the ones more likely to be constantly whipsawed by the so many potential buy patterns and/or signals during the dip runs.
I used mainly YM Intrepid Trades (with trailing stops immediately implemented) to minimize, if not prevent, losses from occuring or to possibly make some money since the developing pattern on the daily chart may keep going on for quite a long time that may last 5 months or more.
For active traders, doing nothing for 5 months or more is definitely not the right way to make a living. I do swing trades for rallies (and selloffs) supplemented by Intrepid Trades and/or Guerilla Trades to keep me busy during corrective patterns. Guerilla Trades are high probability intraday entries with the objective of immediately taking profits at resistances and/or when a bearish pattern develops - with no definitive target nor holding time. Know where your money is. Do not assume all my trades are swing trades.
For the more conservative traders, using the divergence buy (buy at above the last daily bar high) is the usual trade buy strategy. It is not a perfectly successful strategy so be careful.
A better intraday dip buy strategy is to wait for the 15min chart to print a 1-2-3-4-5 rally then buy a reluctant A-B-C pullback as I have repeatedly adviced. What happened during the last few weeks were intraday rallies that got followed by vertical run downs. Definitely not reluctant A-B-C pullbacks.
Usually, a 1-day rally got followed by a day and a half or 2 days reluctant pullback. A four-day rally (May 25-31) should have been followed by 6 to 8 days reluctant pullback, etc. when viewed on the daily chart.
Thursday 9:00 am Update:
Today, the ES futures tested it's daily 200ma support and is reacting positively.
I bought YM again before the open at 11,772 while ES was testing the the 200ma support. The previous YM Intrepid Trade trailing stops got hit during yesterday's run down for a tiny profit.
Likewise, Euro$ was able to make an equal move zigzag or an a-b-c run down on the 240min chart with 1.4040 c-wave target. I used this pattern as an additional high probability buy for the YM. I also bought SSO again for a Swing Trade at $48.50 with stop loss below it's major fibo extension support of $48.43 and the Euro$ at 1.4048 just in case the Greece problems suddenly got resolved sooner rather than later. Both YM and Euro$ already have in-the-money trailing stops to prevent incuring potential losses.
But be very careful since if SnP500 is able to reach it's 200ma support and breaks it hard, then a potential spiral meltdown could happen and the next potential support based on fibo confluence on the weekly and monthly charts is the 1228 to 1233 area.
Again, the better trading strategy for those less technically oriented is to wait for a i-ii-iii-iv-v rally on the 15min chart for the SnP500 then wait for a reluctant a-b-c pullback before making a buy position. Not as proficient as finding real-time high probability support(s) and using divergence buys for precision entries but more effective than most other methods. Just be sure to use trailing stops just in case the i-ii-iii-iv-v rally proved to be an A-wave (or worse a C-wave) rather than a 1-st wave up (in which case further run downs should be expected).
SnP500 is still a high probability 1-2-3 with an extended 3rd wave on the daily chart from the April high. Keep in mind that the pattern has a 90% success rate of forming the 4th and 5th waves in the past. The odds favor the bears at this moment.
Unfortunately, I don't have statistical knowledge of how the 1-2-3 with extended 3rd fared against the daily 200ma support in the past. So, if I am a bear, I will not bet on the 90% success rate when the SnP500 (or ES) has a daily 200ma support to lean on.
Traders are now looking closely at the daily 200ma as their last hope support: