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Broken Arrow

SnP500 is potentially a i-ii-iii-iv-v run down from the lower high level of 1264 of Oct 15 with the i-st wave the longest:

Critical situation now for the bulls.  If they can't make a rally starting today then the bears will have 3 ways to sustain the run down as described on the chart notes.

Since tomorrow is a holiday, majority of traders will avoid making a trade today.

For those intrepid enough;  the Divergence Buy Signal could be used to initiate small positions with a hard break below 1158 (OR 1,155 level maximum allowed run rate for the v-th wave down using an alternative wavecount, but  of lower probability correctness, using the 15min chart) as the mental stop loss; or wait for a run up to 1197 level then buy an inverted Head and Shoulders if it forms;  or wait for a 1-2-3-4-5 run up on the 5 to 15min charts then buy a slow grinding A-B-C pullback for entry if Spx makes a strong run up that breaks hard above the 1197 level.

For those not well trained with intraday charts.  The easier buy entry would be either to buy a breakout above today's high or wait for price to re-enter back above the Channel Lower Trendline Resistance before initiating buy order(s).

For the bears;  they have far more ways and numerous resistance levels to initiate  short postions or add more shorts with the Oct 17 1,293 top as the maximum allowed stop loss.

For the moment, the intiative is for the bulls to master all possible resources (as in Broken Arrow where maximum counter-firepower is needed in order to prevent being annihilated by the bears) and buy the potential Divergence Signal on either the 60min or 120min charts as the last resort potential bottom entry (in preparation for the expected Santa Claus Rally).

- Typo error on chart: Change the (B or 3 here?) to (C or 3 here?).

EOD Additional:

For the Bulls:

The potential Continuation Inverted Head and Shoulders I was expecting as an alternative pattern since Oct 4th may have arrived toward the right shoulder support this week depending on whether SnP500 is able to initiate a rally before it runs out of time (four weeks left shoulder and 4 weeks right shoulder for a balanced price and/or time approach):


This is not a high probability scenario since cont. invHnS have less than 50% success rate based on my observations.

However, better to let the market(s) decide. 


During the last correction of April to August 2010;  the daily Cont. InvHnS won against the weekly HnS pattern resulting in a rally that started August 28, 2010 to Feb 18, 2011.  I was sceptical of an instant rally at that time due to the low probability rate but was proven wrong by the markets.  See 'Game On' Instablog of August 28, 2010.

For the Bears:

This is the scenario for a bleak but not necessarily catastropic 2011 Christmas for the US stock markets:


This scenario assumes SnP500 will produce a i-ii-iii-iv-v run down to a Nominal Target of 1123 measured from the Oct 27, 2011 high - when viewed on the daily chart.  The rally from Oct 4-27, 2011 is considered a corrective.  The b'-wave slow grinding corrective rally should last 1 to 2 months from Dec 2011 to Jan 2012 (maximum 4 months at best)  before another panic selling happens for the c'-wave down.  A strong C-wave down should happen if Europe finally decides to break up OR if the US Dept Crisis itself becomes the driving force in 2013-2014.

I bought NQ and YM again today at closing bell using the minute 1-2-3-4-5 run down on 1-min chart for precision entry into 2164.75 and 11,228 levels.  The previous buys trailing stops triggered with small loses on some and tiny profits on others.

Decided not to buy any stock or ETF today since SnP500 failed to make a possible reversal rally on the intraday charts but instead closed right at the bottom that is considered to be a continuation day pattern thus traders will expect at least a follow-through run down on Friday or a sustained meltdown if the shorts got lucky.

For medium to long-term traders and for those who prefer equities instead of futures;  better to let this week trading to complete it's course and wait for next week to start formulating their individual trading strategies for the expected Santa Claus Rally. 

I use NQ and YM futures buying the bottom of 1-2-3-4-5 intraday run downs since they can be protected immediately with trailing stops (against possible bad news coming from abroad on a 24-hr basis).

Last year, the Christmas Rally started at Nov 30 bottom for reference.  This year it could be earlier since the global markets suffered mightily starting Feb 18, 2011 and still being buffeted by Armageddon Scenarios coming from Europe.  There is what we call bad news fatique and it may kick in at any time. 

We can only hope for the best but better be ready too for the worst just in case we do go into an Armageddon Meltdown.