2H2013 = Moment Of Truth?

Aug. 06, 2013 9:09 AM ET
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Contributor Since 2008

On Jan 8, 2013 I presented the 1H2013 = Trick Or Treat Instablog which basically anticipated the defining moment of who would be the winner or the loser. The Bulls or the Bears:


<< Bullish View: http://g14.picoodle.com/ltd/img14/5/1/7/aarc/f_141u_80f_ubk5c.png

<< Bearish View: http://g14.picoodle.com/ltd/img14/5/1/8/aarc/f_141u_24a_ubk5c.png


By April the bulls were a hair's breath of the 'escape velocity' of > 1630 level for the SnP500. Above 1630 and the pattern would become > 50% bullish and < 50% bearish. It became a DO or DIE situation for the bulls vs. bears struggle:


<< SnP500 Do-or-Die Bullish View: http://g15.picoodle.com/ltd/img15/5/2/22/aarc/f_141u_7eb_ubk5c.png

<< SnP500 Do-or-Die Bearish View: http://g14.picoodle.com/ltd/img14/5/4/2/aarc/f_141u_d4a_ubk5c.png


By May 2013 SnP500 reached 1679 minimum required extended target = making it a fully qualified (but still incomplete) black i-ii-iii rally from the June 2012 bottom and a fully qualified blue i-ii-iii (of higher degree = cycle dergee). Thus SnP500 became 90% Bullish with only 10% probability the bears still stand a chance of achieving a Second Dip or what I call a Prolonged Secular Bear Market Correction or an Extended Super-Cycle Correction - specifically called a Double or Triple Combination Correction in EW terminology.



In May 2013 I introduced the concept that the rally from March 2009 and specifically from the October 2011 bottom is not the bread-and-butter type of i-ii-iii-iv-v or 1-2-3-4-5 rally but rather can easily transform into more complex (including that of a 9-waves or a 13-waves rally) impulsives with 4 possible scenarios updated and illustrated below:


>> SnP500 Conservative Scenario: http://img10.imagefra.me/i587/aarc/141u_f52_ubk5c.png

>> Dow Jones Aggressive Scenario: http://img10.imagefra.me/i586/aarc/141u_b72_ubk5c.png

>> Russell2K Super-Duper: http://img15.imagefra.me/i58e/aarc/141u_5db_ubk5c.png


* It is assumed the Russell2000 Super-Aggressive Scenario (illustrated on Long Live The Queen Part II and Profit Taking Strategies) is already null-and-void. But actually, it can still happen since R2K is making only a minor penetration above the 1052.62 Upper Limit and may be starting a corrective process with a higher-high pattern on the daily chart.

From those charts it is obvious that the blue i-ii-iii-iv-v rally is not going to happen within 2H2013 and thus the probability of a Double Dip is still intact, if not still highly expected, by the more bearish market participants (unless and until a complete i-ii-iii-iv-v has finalized):

>> SnP500 Long-Term Bearish View:


>> Dow Jones Long-Term Bearish View: http://img15.imagefra.me/i587/aarc/141u_f34_ubk5c.png

Majority of analysts are not familiar on how to use the Fibonacci Extension Method. A simplified way of finding major resistances is by drawing trendlines below and above the chart pattern(s) - which in this case the upper resistance channel co-incides with the usual Potential Fibonacci Extensions Trend Reversal Levels of 127.2% to 138.2%. Thus a reactive (contrarian) downward price action is expected by the long-term bears as they start taking advantage of any weakness in the stock market(s) and/or the economy within and outside the United States - if and when they do occur in the near- to medium-term future.



For the short-term basis:

>> SnP500 Conservative Daily Chart: http://img10.imagefra.me/i587/aarc/141u_c1c_ubk5c.png

>> Russell2K Super-Duper Daily Chart: http://img15.imagefra.me/i587/aarc/141u_b7d_ubk5c.png

The short-term Dow Jones Bearish Scenario was eliminated but we still have two to contend with - before another sliver of clarity can be achieved. Right now a Pullback or a Correction is expected for the SnP500 while a sustained rally should happen for the Russell2000. Which way the wind blows is still basically a toss-coin at this very moment.

For very short-term trading; this is the conservative scenario:

>> SnP500 Intraday 60min EWA: http://img15.imagefra.me/i587/aarc/141u_a10_ubk5c.png

1724 is the 1-2-3-4-5 Nominal Target measured from the July 3 higher low bottom. Zooming further to the potential 5th wave; the minute i-ii-iii-iv-v (no shown on chart) has a nominal target of 1714 if the 4th wave actually terminated at 1676. Right now the 1710 recent high can be considered the terminal point for the under-performing 5th wave fi the 4th actually terminated at 1682 instead of 1676 - and an A-B-C correction or a 1-2-3-4-5 meltdown is expected by the bears. Likewise, if SnP500 starts rallying hard without going through a few weeks of run downs then the Alternative Wavecount will start to kick in - for the very short-term bulls or super-duper bulls.


Trading Strategies:

Finding exact bottoms of 4th waves is much harder than finding the 2nd wave bottom. The current price action(s) proved to be no exception - when viewed on the Intraday Charts. The i-ii-iii-iv-v rally on the weekly chart may or may not be able to reach it's nominal target of 1768 for a 1:1 ratio for the first and fifth but might actually terminate at the 1710 Intraday High.

IF a run down starts to happen there are at least 3 potential scenarios:

#1: A minor pullback that will not retrace the whole rally from the June 24, 2013 bottom with the Daily 50ma the strongest support and the Daily 20ema as trend-trade support (if SnP500 is able to trend up with ADX reading of => 30);

#2: A major pullback comparable to that of April to June, 2012 wherein SnP500 lost 155 points or 10.90%; or

#3: SnP500 goes into a blue iv-th wave correction of the Weekly Chart comparable to that of Feb to Oct, 2011 wherein it lost 296 points or 21.53%.

With far too many possible scenarios a defensive trading strategy is the better part of valor. Thus I will be taking more profits at a 15-min intraday A-B-C Pullback Up. IF SnP500 suddenly goes into a vertical intraday rally; then using Tight Trailing Stops is the next best option in order to maximize profits to the upside. The objective is to sell another 1/3 positions for the short-term to medium-term Taper Turmoil Trade specified on Profit-Taking Strategies - which was if and when Rut2K reached it's 1052 nominal target or when SnP500 is able to finalize a 1-2-3-4-5 rally on the intraday chart. The remaining 1/3 positions will become a 'Free Trade' with very wide trailing stops - in order to possibly capture the 3rd or 4th scenarios - specifically the 1768 Nominal Target for SnP500 and/or the Super-Duper Scenario for the Russell2000.

* IF an a-b-c pullback down happens on the intraday and/or daily chart toward the daily 50ma support; then more likely I will be trying to buy a bottom as a Day-Trade separate from the Taper Turmoil Trade.

** Shorting the markets seems to be very tempting at this stage but I would rather wait for a 1-2-3-4-5 run down to happen first on the intraday or daily charts before shorting the A-B-C pullback up (to protect my medium- to long-term portfolio).

Done. Completed 8 am Aug 7.

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