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The Walls of Worry

Stock markets were able to rally yesterday and today despite some bad news coming from Europe and the rampaging Occupy-Whatever Movement.

But as a trader, experience says never to let the guards off in these bi-polar stock markets.  The diminishing volume as the rally progresses indicates the high probability of a i-ii-iii-iv-v rally with the i-st wave the longest on the intraday chart:


This is not a high confidence wavecount.  Therefore, it is better to sell some long positions but keep the rest with trailing stops.

For the bulls;  this is the most recognizable pattern hurdle at the moment on the daily chart:


Not a high probability wavecount since c-waves usually are accompanied by volume spikes as they terminate.  But then again, the markets have many ways to surprise everyone.  The whole consolidation range could actually be a complex triangle due to the consistently diminishing volume as the consolidation range develops only that the price structure that have formed so far does not support a 3:3:3:3:3 or a-b-c-d-e wavecount at the moment.

For the bulls;  best hope is for SnP500 to at least make a 1-2-3-4-5 rally toward the July 2011 high either with a straight rally or by forming an Inverted Head and Shoulders at the bottom.  For now, there is no knowing what will happen next.

For the bears;  best hope is that SnP500 makes a Head and Shoulders Pattern on the weekly chart:


SnP500 and Global Dow are the primary candidates for bearish Head and Shoulders patterns on their weekly charts.  Global Dow, however, is also a potential bullish expanded flat that may precede a strong rally that may last more than a year:


Global Dow could be the best hope for the bulls for the medium term since it is higher probability an Expanded Flat.

Transports is the most bearish pattern on the daily chart:


It is worth monitoring the Transports sector at this moment in time.

It is extremely hard to make either a bullish or bearish position for the US markets since the significant bottom of March 2009 at this moment in time. The SnP500 and Russell 2000 can be considered 'broken' already and are headed to lower lows in the months ahead.  Dow Jones and Compq are still capable of forming an acceptable 1-2-3-4-5 rally on the weekly chart with presumably the 5th wave has already started last week.

For the SnP500, 1220 is the major resistance since it is the April 2010 high that was supposed to be the last support level to prevent Spx from going toward the July 2010 low of 1011.  IF SnP500 can break hard above 1220, then the daily 200ma will become the major worry resistance the bulls will have to tackle.  The daily 200ma is starting to accelerate downward after the price remained ranged-bound below it's level for several weeks.

I reduced my SSO Swing Trade from 2/3-rd to 1/2 positon during the minor i-ii-iii-iv-v run up on the 15min chart while SnP500 was approaching the major 1220 resistance level.  Will try to buy them back if SnP500 slowly goes down and makes an Inverted Head and Shoulders pattern on the 120min chart (that is, if Spx decides not to go into a straight rally on the daily chart).  For now, I remained cautious.

The YM Guerilla Trade tight trailing stops got stopped out early in the game at the 11,050 to 11,100 area.   The NQ Swing Trade remains viable but I am starting to tighten the trailing stops just in case Spx decides to form an inverted HnS or worse go into a straight meltdown.