Monday, December 16, 2013

Trend Average Test

On Friday I posted the market could be in a Triple Bottom Reversal set up or a consolidating Bearish Triangle that would bring another leg to the 50 DMA and today we got both of them today. The market broke out of its triangle in pre-market by as much as -14 points and then it magically bounced right off the 50 DMA and rallied hard from there to test the Trend Average at 1791. With the counter rally today to the TA, both IHS and TBR targets were met and the market could technically start dropping again as soon as manana. But I am going to assume there is a 5 wave count on the cash market with another high to come before seeing the bearish response, so I labeled the low today as the a W4 and we will get an idea if this correction will continue on the coming wave. If I assume the wave from 1810 to the 50 DMA (counting pre-market levels) is W1 of W3 then we're looking at 1680 more or less (or basically a test of the 200 DMA) for a complete 5 wave count. If we get anything less than a strong sell off after this wave tops, then we could be seeing an X wave of a complex correction or a W2 of a bullish count that is going way past the all time high. I put up the long term count so we can see where the market is at and how this is all fitting the bigger picture. If that count is correct, we should see a deeper correction but even if we don't get a stronger W4 one thing the count has right about are the turning points labeled in the spring. Call it coincidence, magic or voodoo but this chart has been very profitable so far.

I executed my trading plan at the test the TA, so I sold XIV, bought back VXX but then sold it to take profits (Surprisingly,  I made more money on the VXX I bought in the morning than the XIV from last week ). Not quite enough to pay for the fence just yet but making good progress. I am assuming the market has another bullish leg left so I will be buying back VXX then. And btw, the fed meeting, taper talk, etc. is just noise. Look at where the market is relative to the TA, that's all we really need to focus on.

Short Term Trend = Bearish
Medium Term Trend = Bullish
Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

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