No updates means no trading, and for my own good indeed. This market has been ignoring the technicals and those traders for the most part have stepped aside waiting for the right opportunities to become interested in the market again. The market goes through phases where different methods are “in control” and the technicals had a great run through almost half of last year, on both the downside and the upside. Then other things took over; learning to identify such behavior is important regardless of which trading style you personally subscribe to.

We’ve arrived at the next technical likely reversal level. However, the wave count remains unclear because we have broken the May 1 2011 high (briefly), so technically we should be in a wave 3 up. However, I’ve seen ABC wave 2′s take out the previous high/low by a small margin several times, and with the market as overbought as it is, there’s no safety in a long position currently. Here’s what I see:

So, this is the w.C = w.A point if this is indeed a wave 2. So we should start paying more attention to the market now. However, we also don’t have a lot of confidence that the market cares about these levels yet, and it still feels a “bit early” for a real return to a technical market. This could be the beginning of such a setup though on the weekly or monthly charts – we’ll see.

Specifically, if we do get some downthrust on a weekly chart, we might make a double-repo on a long-term chart. If that happens, then we’ll finally be looking at a technical market again.

I was prepared to take a short position on a reversal if we got one within the target region and general target time range, but that never happened. Instead I mostly sat and waited. I am still holding my put, the total value of which was 1% of the trading account (so it equals one trade), and I’m holding it without a stop since options give you that luxury. The market is still very overbought, but I’m unclear on the actual wave structure so I’m not looking to enter any new positions.

So, in short, I haven’t done anything and haven’t seen any good opportunities, so I haven’t updated this blog. Standing aside proved to be the right thing to do as well. What to do now is to wait for a top to begin to form and then look to see after-the-fact if that top is occurring within a reasonable location for a long-term top. If not, it’s more likely just a short-term pullback and we don’t want to get short on that.

The market is still overbought on the weekly bars:

and on the daily bars I don’t have a strong opinion:

Okay, my put is down $14. I didn’t actually enter a real stock position though, because the entry order was on a break of the 1-day low, and that didn’t happen. We’re still in the general target region (my ideal target is around 1305), so I’m holding my put, and not generally looking to enter until we get another reversal day. I still think that will come soon.

So, we’re now sitting on the target region exactly, and the 13 daily DT oscillator is still bearish. Since we broke yesterday’s high, I canceled my entry order, but we could get a DiNapoli-style RRT (railroad tracks) or the similar DT-style snap-back reversal day by the end of the week and I’ll be looking to go short on such a signal.

Believe it or not, I closed all my longs on the gap up, and bought a put. So I was long from 1222 and then got out at 1300, going short. Pretty solid.

Today was a gap signal day. That means, while it’s an “up day” on a close-by-close basis, it’s a big red candle on the charts. The markets made a nice gap up but couldn’t advance, and closed the day near the lows. It’s one of the strongest reversal bars in our arsenal:

I’m going short with 1% risk with a stop above the high of the reversal bar. You know, because I live on the edge.

Now, you’ll notice that the previous chart was the SPY. This shows the “pit session”, or the regular trading hours. It’s when most of the volume happens. Here’s the S&P index:

You’ll notice two things immediately: we had an “inverse candle” type candlestick, where the intraday high got really really close to the target region. Great! Second, the important DT Oscillator (the 13 daily) just made a bearish reversal. Entry now is a matter of personal preference. I can go short on a break of the daily low (1290.14), immediately (1293.60), on the break of a swing low (1277.48), or on the 1-week low (1274.54). These all have trade-offs. The lower entries have a higher probability of not being faked out following the break. Here’s a close-up so you can see these more clearly:

And here’s the weekly chart so we can see the bigger picture:

Lastly, I’ve noticed that a whole lot of people are calling for this same reversal:

Smarttrades: http://www.youtube.com/watch?v=5ab6GJqqm3c
Dynamic Traders: http://www.projectstreamer.com/users/dynamictraders1/DTalertTutorial120114/

Since this is supposed to be a wave 3, I’m not worried that the writing is on the wall. These are some of the best minds in technical analysis, and we should all be seeing the same thing.

Now let’s see what happens.

I didn’t update the blog last week. That was actually on purpose; even though we hit the time target, there were no convincing reversal signals nor did price take out the 3-day low, and neither did price reach the price targets.

Therefore, I remained, and still am, long. I’ve been long through the entire rally, and I feel pretty good about that.

Well, it’s time for this party to end. I’ve moved up my stops to essentially stop me out if the market goes any lower than where it is right now. And now I’m looking to go short.

First, let’s look at the weekly picture. We’re overbought, as you can see in the weekly 8 DT Oscillator:

We also hit the OP (DiNapoli) objective for this wave up. When the market is as overbought as it is, that’s a fine target to shoot for in DiNapoli world. From an Elliott Wave perspective we have also met the minimum requirements for a Wave C because it exceeded the Wave A top. However, ideally we’ll still have that final rally into the confluence area. I can’t guarantee that’s going to happen, though, if we do get there (or, if we opened there), I’m looking to enter a position on a reversal for sure.

Let’s look at the daily picture:

Did I mention we’re overbought? Look at every DT Oscillator there:

That’s not very common – and therefore it’s noteworthy. The 8, 13, 21, and 34 DT oscillators are now all overbought, and price looks pretty good. This is very exciting.

I would like to see some sort of reversal bar. Yes, the last bar on the S&P 500 index was a reversal bar, but the pit session was not. In fact, the pit sessions have been mostly bullish every day this week. Eventually (and I expect that to be soon), we’re going to have a nice reversal bar in a pit session. Meanwhile I’m trailing my stops close, and protecting profits. I’ve made a very nice profit on this run and I’m not going to give it back without a fight.