Monday, July 23, 2012

So much for the 5th wave..

Today is one of those days that shows the problems of using wave counts to trade. We had a nice 4 wave sequence but there was no 5th wave as anticipated and I think we've seen this several times already this year. And this just reinforces the limitations of using wave theory alone as a tool to trade, especially longer time frames. With that said, the market does follow a pattern more often than not and as traders we're just trying to find positions with favorable odds.

I want to see what the bounce will look like before labeling the chart again, so today I posted a longer term chart and the channels the market seems to be obeying. Notice the lower support channel the market seems to be finding a floor during sell offs. If this channel breaks, then we might see a new downtrend develop. So we today we had a bearish day but it is still questionable as to how bearish. The market closed under the trend average at 1356 and another close below it should be enough to change it to the bearish side. However, until the market starts closing under the 50 day ma (1333), the market is still bullish.

Long Term Portfolio: 100% Long
Short Term Trading Strategy: Shorting intraday extremes, closing same day

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