Sunday, September 4, 2011

Weekend Thoughts - [9/5/11 Update]

[9/5/11 Update]

With ES down over 28 points, I wanted to show this chart below. Last week I pointed out in the chatroom how similar the two tops looked. So far the second drop has mimicked the first.

Without cluttering the chart, the first retracement was approximately 78%. This second one is there now. Will it bounce from here? Will the lower end of the channel provide resistance?

I've added the yellow channel for spx. This may be a possible target should ES hold through the night.


Some who follow me in the live chat room  know that I believe counting out the longer term waves is more academic than it is practical for trading. Though it does provide a potential road map for the future path of the markets, the fact that so many options exist and the time it takes to validate or invalidate those options makes it impractical to set proper stops without losing your shirt.

So with that, here are some options to think about that may be more practical for trading near term.

6 month

The yellow and blue options pair up with the long term primary bull count below. The purple label pairs up with the longer term primary corrective count. 

Based on this 6 month chart I am proposing that a potential corrective rising wedge  or leading diagonal triangle may be playing out should this rebound not be complete. A break of 1135.91, however, increases the odds that the rebound is over. 

So whether bull or bear, shorter term, we may see a rebound to 1200 to complete wave e blue or as high as the 50 day SMA near 1250 right now. 

Should the market find a way back towards the 50 or 200 SMA, one must then begin to think about a potential leading diagonal as it could pair up with the longer term bull count and one of the options in the longer term corrective count. 

Either way, this would still fit with the bearish view that this entire rebound was a wave 4 and a 5th wave down is due to come.  ( I still don't subscribe to that count but it doesn't really matter since they all imply the same thing here) That 5th wave down, if you subscribe to the bearish view, is equivalent to a sharp wave 2 pullback for the leading diagonal case. Since it will be sharp but fall short of making a new low, the wave 4 camp will call it a truncated fifth. 

Again, it doesn't matter because both counts then imply a much sharper rebound is to come. As a trader do you really care (at least for the time being) if it's a larger wave 2 rebound or the start of a larger wave 3 up? As long as you are on the correct side of the trade that should be all that matters. 

Once the waves begin to develop, only then should we start to reassess what the bounce target will be.

I hope this all makes sense and if it doesn't, I apologize because I'm just trying to post my thoughts quickly so that I can enjoy the rest of my weekend. 

Please feel free to comment on this or add to the discussion. 

2 year

The charts below highlight the battle between bulls and bears longer term. Notice how the above charts may be taken 
Primary Bull

Primary Corrective
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