RECENT SHORT TERM TRADES
Before I begin, a recap of recent short term trade setups off the equity top. On a short term basis, I have been playing Wonderwood trades. Click here to see Names of Trades. These trades were posted immediately (minutes..the time it takes to post) afterwards on here and on Twitter, among other places.
Starting late Wednesday afternoon, I began anticipating a bullish bounce position and entered a Wonderwood (see names of trades tab above) long trade. Click here for Wednesday' Wonderwood Long. After the close I reviewed and determined I would remove the stop on that trade and enter additional Wonderwood long positions on any additional lows. Click on Stock Market Update and Outlook for June 6 and 7, 2013 to see the analysis. Following through, on Thursday I entered a second Wonderwood long position near the morning low. Click here for second Wonderwood Long Position from this morning. On Friday, I exited those long positions. Friday's Exit Post. Harvesting those long positions gatheredapproximately 4 SPY points (40 S&P 500 points) on the second entry position, and on the first entry position approximately 3 SPY points (30 S&P 500 points).
Prior to those long entries, the short term trading had focused solely on short Wonderwood positions. The second short position harvest gave approximately 3 SPY points (30 S&P 500 points). Second Wonderwood Short Position. The first Wonderwood short position off the top yielded approximately 2.6 SPY points (26 S&P 500 points). First Wonderwood Short Position. In between those two short positions, there was one short attempt that stopped out at approximately .8 SPY points (8 S&P 500 points), which simply allowed a better entry for the second Wonderwood short position the following day. Stopped out Position.
In summary, since I identified intraday theMay 22 Top and Breakdown, this move has yielded nice short term setups and results (approximately 118 points since the May 22 breakdown) in both directions.
RECENT MARKET SCENARIOS FOR JUNE
Then I was able to eliminate a scenario and said we would know by the end of this past week which of these two I would make the primary scenario:
Here is the link to the discussions where the scenarios were setup. Recent Stock Market Scenario Discussion.
Now that we have not--so far anyway--followed the blue line scenario, I am removing it from the chart. I will add it back in if the market begins to follow. That leaves the remaining scenario (the pink or purple line in the chart above) as a potential road map, which I have adjusted and painted red in the chart below:
Now, I am not sold on this is new Red Line Scenario, particularly because on Friday it became very popular on the blogosphere. But, sometimes the herd is right. So, I am going to use it for now, with an eye towards a strategy to trade off it. This one I am merely using as a road map, rather than timing as I am not sold on it as mentioned above.
TRADING STRATEGY FOR NEXT WEEK
The move on Thursday and Friday last week saved the middle of the chart breakdown, and also saved my trend parameters from crossing bearish. Thus, trying to short into this move is risky given trend. As mentioned in the introduction, we are in the middle of the daily chart. To watch setups here, I have decided to employ Bollinger Bands, the 50 period moving average, and daily candles. Here is the daily chart that shows we have bounced off the middle of the chart.
I have chosen to employ Bollinger Bands here because of that chart location. The bounce off the middle of the chart is a difficult location to trade from (we nailed it with the short term long trades last week) because there is half a chart above and half a chart below for you to be hurt with depending upon whether you are short or long.
So, the trade here is a break of that middle line (the 50 period simple moving average), triggers a short to at least the lower bollinger band). Here is a sample of the strategy: Example Bollinger Band Trade.I need to be careful here because given that we came out of the upper bands, a bounce back up off the middle of the chart is not unexpected if you follow the band trades. Often, such a bounce can produce a higher high without piercing the upper band before coming back down. On other occasions, it can just bounce like we did and then break the middle of the chart triggering a move to the lower band. Either way, I like the strategy here as it gives us the center line as a stop to push off of for the trade.
Now, I would prefer to try to front run a move back to the middle of the chart hoping that it gives me a better entry for a break of the middle line and a move lower. For this, I have put on the chart two key lines for Monday and Tuesday. First is the SPX Breakdown line (the candle low below the 50 period moving average). The second is the Friday candle low, which would trigger the bollinger band short trade in the NYSE and, I would then hope, the S&P 500 and thereby give a higher entry for a short trade in SPY.
I have put green lines on the chart. For me to get interested in a run to a higher high here on anything beyond a short term basis, I need to see those lines break. If there is no entry, I am happy to sit and wait for a short term Wonderwood trade to materialize rather than chase price. Accordingly, I will be watching for entries off those areas early in the week, with a stop above the green stop shorting line.
LONG TERM THESIS UPDATE
The long term thesis has not changed. In March, we nailed the top using the NYSE and anticipated a long wave 4 into April and then a thrust out of that wave 4 into May. See this Thesis Update in Detail With Links, which gathers the analysis and some of the key links.As shown in the link, the thesis continues to be that after the thrust up out of the wave 4, the market would back test the November 2012 low. That continues to be the long term thesis and I have no reason to deviate from that thesis.
The thrust out ended approximately 7 trading days after the anticipated turn date, which is not great, but for a long term cycle top date identified months ago is not bad. From a long term perspective it really does not matter as the key is the retrace of the November 2012 low at which point longs will be reentered (if the low holds) or the return of the bear will be considered (if the low breaks). Of course, it could be the market just doesn't stop going up, which would render the thesis wrong. Here are a couple additional recent mentions of the long term thesis if you are interested in this thesis: Next Thesis Update and Bear Market Scenario Update.
Now, there are a couple interesting things recently in relation to the long term thesis. First, we now have a confirmed Hindenburg Omen Update. See AlbertaRocks TA Discussions for Hindenburg Omen Analysis.
This is helpful to the long term thesis as it gives us some probabilities relating to that index as identified in AlbertaRocks analysis:
Major Crash - 27% probability Selling panic of at least 10-15% - 39% probability Sharp decline of at least 8-10% - 54% probability Meaningful decline of at least 5-8% - 77% probability Mild decline of at least 2-5% - 92% probability The HO signal is an outright miss - 7.7% probability (one out of 13 times)
This signal having occurred right after the thrust out of the proposed wave 4 area is completely consistent on a probability basis of the long term thesis of a back test/correction of the November 2012 wave up.
The second thing is whether we need one more high or not prior to the proposed back test/correction of the November 2012 wave up. This I do not know the answer to for certain or with probability. I have been discussing it on private blogs with some good technicians. The scenario is one more wave up above the 1700s versus the top on that November 2012 wave up is already in. Here is why there is ambiguity in the simplest sense (blue lettering below):
I am staying a bit agnostic on the issue and following the strategy as outlined above to let the market answer that question for me. CURRENCY UPDATE
I have been tracking the USDJPY short trade, which we have been nailing. The initial USDJPY Post. The harvest post. Harvest Post. Last Weekend's Currency Update post: Last Weekend's Currency Update. Thursday's stop move to a weekly candle stop: Weekly Candle Stop.
As has been discussed in the links above, the remaining position is a "runner" short position after the initial harvest. I have debated how to play this from a stop perspective (discussing that I will let the market harvest it for me, rather than guess at the harvest, and not try to get all the points in the move). Last week I used a weekly candle stop. I have given this some thought over the weekend and am going to switch the stop to a 10 day candle high stop. As soon as it breaks the prior 10 day candle high, the runner short will be exited. So, I will track that going forward from time to time to see where that stop out finally occurs. Here is the chart:
CONCLUSION
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Peace, Om,
2S3AVMHR3NUH
