Monday, May 6, 2013

5/6/13: This *still* could be a B wave, sounding like a broken record

I'm going to start sounding like a broken record but I am still sticking to my guns on the bearish thesis.

My thesis is we are still in the confines of a drawn out B wave that is reaching its maximum allowable B wave retrace for an expanded flat.  The postcondition after this B wave is a C wave that takes us below 1530.

If wave A was 1597 to 1536, then a max wave B retrace is 1.382 * the length of wave A.  1.382 * wave A = 84 points.  Add the 84 points to 1536 and the target is 1620.  Frankly I need to weigh this possibility going forward in wave Bs.  I wasn't careful on the risk calculation and now I am still holding shorts through the Friday gap move.

Now we are at 1619.77.  I think market is aware of this fib ratio.

In hindsight it would make sense for this setup to be an expanded flat because this would be the only conceivable way for the SPX to break below 1530s since wave Cs in expanded flats move beyond wave A.

Note that this isn't the top.  I am expecting higher moves up but the SPX needs to "reload" so to speak...transfer shares from weak back to strong for another ramp up.  None of this slow methodical movements will get SPX to 1700 IMO.

On a P&F 10 point 3 box reversal chart, SPX needs to make a higher price > 1620 to draw another "X" in the column.  However the issue is the P&F is depicting a broadening top right angled pattern.

Ideally we should be at a short term top.  NYMO made a lower low vs. Friday so chances are for some sort of pullback to fill the gap.  Ultimately I think Thursday or Friday we move back up into 5/10 to retest the highs.


When a cold streak occurs, I make sure I figure out what happened and how I can avoid the same mistake in the future.

There were a few signs that I was slow picking up on:

1.  There were two positive reversal signals on the SPX prior to month end.  A positive reversal signal is one where the oscillator (i.e. RSI or CCI) makes a lower low but price makes a higher high.  This is different from divergences.  In the case of positive reversals, price is expected to move past the most recent high.

SPX had two successive positive reversals one after the other.

In the first one, SPX closed at roughly 1575 on the hourly approx on the 23rd and had a close around 1577.56 on the 26th therefore achieving a higher low.

Both the RSI and CCI (21) made lower lows.  What happened next was SPX moved up to 1596, besting the 1592.  It started forming a negative divergence at 1597 which prompted the short term pullback.

The second occurrence then happened when SPX reached 1581, forming a major bottom.  It ended with a higher low and a deeper CCI/RSI move.  This was noticeable on the daily chart as well.  CCIs were way oversold relative to before.

This + the positive reversal combined to give SPX 1598.  Additionally there was a positive divergence on the CCI 21.  What happened was a major gap up over 1600.

I'm not sure why I was slow to realize this but to me, as a trader, this was a catchable move in hindsight.  As a result, I am not concerned about my methodology and analysis but I am slightly concerned about the process that missed this.

Good luck to all.  

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