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Proactive Vs. Reactive Approach

Compq is now at new all-time highs. As usual, Divergence Sell Signals abound.

>> Compq Daily Bearish View:

>> Compq Weekly Bearish View:

>> Compq Monthly Bearish View:

Nominal target remains 4553 for Compq daytrade per last Instablog.

However, the 127.2% Fibonacci Extension is a major resistance on the daily chart that makes the potential divergence sell signals on all time frames a possible triple whammy if they trigger one after another = potentially creating a cascading effect very hard to contain.

SnP500 remains bearish until it is able to reach the double top resistance of 1991.

Dow Jones remains the Potential Running Correction but then, if it suddenly produced a lower low then a zigzag down toward the Major Support can become a low probability since it already retraced more than 61.8% of the previous run down.

See previous Instablog for the different scenarios.


Trading Strategies:

Major indexes are becoming much more divergent against each other since May 2013 to the present.

Usually, such highly divergent price patterns result in either a very strong rally or a vertical meltdown to synchronize them back. Other times divergences can last much longer than expected. All the time they become extremely hard to analyze thus achieving high probability scenarios become much harder over time as the patterns' divergences persist. Sometimes some high probability trade setups would present themselves but most of the time there will be no high-confidence trade setup at all.

>> Basically, if Compq collapsed and SnP500 makes a lower high lower low on the daily the bullish scenario on the daily chart (with Spx rallying above the Wider Range Bar and SPY closing the gap down on intraday) for SnP500 can suddenly change dramatically since it has already retraced more than 61.8% of the run down. Thus ... higher probability it will be a i-ii-iii-iv-v run down with a nominal target of 1809. That is, if it suddenly collapse right now or before reaching the double top of 1991.

At any rate; it is Compq being potentially bearish on all time frames that has to be taken with much greater consideration. More than ever in this 2+ year old bull run.

The proactive approach is either take some or all profits off the table on daytrades as Compq approaches it's 127.2% resistance OR sell if the divergence sell signal on the daily triggers as part of SOP trading discipline when trend trading a short-term rally.

The reactive approach is this:

>> SnP500 Intraday:

More often than not a > 61.8% retrace of the latest leg up results in a test of the last higher low or a breakdown below that higher low. Thus, a protective trailing stop loss can be used below 1957 in the above illustration. Higher if SnP500 rallies a little bit more. At any rate, SOP trend trading strategy is always use trailing stops to protect hard earned paper profits - no matter how confident you are the rally will continue forever and ever.

Thus, for those who might want to hold on to some or all their positions; taken in isolation, the SnP500 might just be a nested 1-2- i-ii-iii with iv-v- 3-4-5 to follow. Who knows, it might even go into a 13-waves rally on the intraday basis. Thus, it is more a matter of rewards vs. risks analysis rather than anything else for the more aggressive traders.

For others: There are always alternatives. A balanced approach can be formulated. One of which is to sell some daytrades at or near the Compq 127.2% Fibonacci Extension Resistance. Hold the rest with tighter trailing stops; then SOP sell some more at or near the nominal target of 4553; then who knows, it might just over-perform and be able to reach the Upper Limit or perhaps even a irrational exuberance rally might just happen - thus keeping some for keeps sake can become a better trading strategy. After all, as traders, speculation is one of our specialties without which it is not possible to trade the markets as frequent and as profitably as possible.

For me:

- I decided not to be too greedy and forgo buying back NQ on an a-b-c down next day after the last Instablog was published.

- I will be holding the 2/3 SSO bottom buys of August 5 as a 'Free Trade' with stop loss near breakeven just-in-case Dow Jones proved to actually be a HUGE Running Correction on the daily chart. This way, I will lose nothing and possibly gain HUGE too if an irrational exuberance rally do happen on the weekly and monthly charts OR if this 1+ year old sector rotations keep producing marginal higher highs higher lows (till kingdom come?).

UP HERE ... Cautiously long is my mantra for the short-term to medium-term basis.

Psychological preparations for a possible 10-20% correction remains the main defensive approach to date as SnP500 approaches it's medium-term target of 2143 on the weekly chart specified in November 20, 2012. Where and when I will start shorting ES to protect at least a portion of my long-term portfolio remains in limbo while a high-confidence entry eludes me.