Emini S&P 500

How yesterday may have unfolded.

The Bernanke testimony before the Joint Economic Committee, U.S. Congress had traders on the edge of their seats. At the time, I tweeted, "Spirited trading today" and the bulls were pushing the market higher. Possibly they drank from the punch bowl that Bernanke had spiked so many times before and it tasted different. 

Approximately an hour later, the breakout was in jeopardy. When the 240 minute bar closed, the message was clear. The breakout failed. Fittingly, Martin Pring describes this intraday pattern as a Pinocchio Bar.

Initially, several Fibonacci relationships lead me to believe that an argument could be made that a five wave sequence ended at what is now labeled as w.iii circle. However, given the loss of 1646.5 in the overnight session and subsequent price action I offer this count. Confidence remains against the figure 1632.75. 

Price has already advanced off the lows in what appears to be a corrective move.  That's what we would expect if a a w.2 or w.b was unfolding. 

While the sea may be full of red at the moment, it is in my opinion that a correction of the prior day's decline may be in order. 

Let's see what develops.

Best of Trading 

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Fair Disclosure Notice: I do not have a position in any of the aforementioned futures markets or securities related to this article. 

The Market Pulse

Picking up from where we left off last Wednesday, the above chart shows that I was looking for w.v circle where w.(i) had completed. Today's close above the origin of w.(i) or 1206.75 negates any interpretation of a fifth wave and my interpretation is invalid. 

Tonight we'll explore an alternate count.

W.iv circle appears to be unfolding as a W-X-Y, double zig-zag. Several Fibonacci levels ( 1120, 1228, 46-49 ) are the levels I'll be watching for failures and the termination of w.iv circle. Notice that price remains within the corrective price channel suggestion that this rally is corrective and not an impulsive move. On a closing basis, a break above the upper boundary would cause concern for this view.

Helicopter Ben's Meddling Stops The Bleeding

The rally from 1097.5 has the distinct look of Bernanke meddling. Did the market anticipate that he would leave the door open to further stimulus and then rally even more upon the FED's statement? Did the FED talk a good game and place a floor right under the market for a second time? I'll let the market provide that answer.

Even though the bulls are getting a bit brave with the Bernanke Put by their side, I see nothing to indicate that a new impulsive wave has begun. The 2007-2011 analogy that I've been following suggests that today's move, albeit slightly different, at the daily chart level (see charts below), in 2007 still suggests that a final round of selling will occur and draw prices below 1097.5.

The highlighted section shows that a new recovery high did not occur before completing another sequence of selling whereas.....

.... today's rally made a new high adding uncertainty to the overall minor degree interpretation.

 

While the daily and intraday chart levels deviates from the analogy, the monthly chart level that was show in my Global Gains video clearly shows that the larger degree is still very much intact and the rally was called for off the lows.  According to the analogy, the rally ends by months end.

Let's see what happens in the next two trading days.

Best of Trading

How to Use an Alternate Count : Part II

Yesterday I received a DM from a Twitter follower. His concern was that Bernanke's might announce QE3 in his speech and cause the market to rally as in the QE2 announcement. After a brief conversation, I turned my attention to following a market call that I made and then I thought..... there's a great lesson unfolding that illustrates what I had just said in private hours ago. I hope he the saw the post.

This is Part II , that covers the market action since we last spoke. If you missed Part I, click here.

This is the last chart in Part I of the hypothetical trade. At the time there were several warning signs that developed that cause me concern and stops were moved up to 1289 guaranteeing a minimum  3.25 profit per contract if the stop is hit. (see Part I for details).

The market continued to rally in a choppy manner to 1294.75. If a trader was managing the stop as suggested ... the stop should have been 1291.25 at this point.

Here are the final subdivisions for w.iv circle where the wave pattern unfolded as a double zig-zag rather than a simple ABC that was called for in the trade plan. By adopting an alternate count we were able to remain in this trade. The pattern terminated  at 1294.75 just below where w.(C) of the second zig zag = w.(A) at 1295.75.

The trade was stopped out at 1291.25 for a profit of 5.25 per contract. If a trader wasn't using the Elliott Wave Principle,working an alternate count, and managing stops.... look what followed! That's why trading what is happening now and what you see is a must for successful trading. The Market provided all the clues to successfully manage this trade all we had to do is watch. 

I hope you found this information helpful and best of trading.