Wednesday, March 5, 2014

Wednesday's Prospects: Round 2

For the third day in a row, I've not found any symbol in my second round of analysis that's worth a deeper look. That is an extraordinary conclusion on a day when the first round of screening turned up 72 potential trades and is worth a deeper look, with a chart or two.

(See "Wednesday's Prospects" for the first-round lists.)

Most potentials confirmed their signals in trading today, but a large number gave signals on charts that had the appearance of a retracement within a downward correction, what I call the Sucker Hook. Here's an example from the ACIW chart:

Click on chart to enlarge
ACIW 60 days hourly bars
Now, it may well prove to be the beginning of a new uptrend, but I'll only know that if the price moves decisively above the prior peak. Until that happens, prudent trading suggests that I shouldn't allow myself to be suckered by the hook unless there's a clear count to support the bullish interpretation.

I next took my list and ran them through a 200-day moving average analysis. This is a classic form a chart analysis that provides a strong visual of the age of a trend.

Here's a chart of SPY, which tracks the S&P 500, with the 200-day moving average in red and my current Elliott wave count.

 Click on chart to enlarge.
SPY 3-year chart daily bars

Many of the first-round survivors on today's list moved decisively above the 200-day moving average back in mid-2012, and didn't look back. That would correspond with the beginning of wave 5 {+1} to the upside on the SPY chart.

The S&P 500, of course, has stayed decisively above the 200-day moving average since December 2011, shortly after the start of wave 3 {+3} to the upside.

These are all very mature trends, and I'm generally a bit nervous about leaping on to a trend that, by age at least, is ready to retire.

SPY is within wave 5 {-1} of 5. When those waves ends, the markets will correct at the magnitude of the rise from June 2013, which this week topped 20%. I'm far more likely to enter under such circumstances if the chart shows a less dramatic correction ahead.

At this point I'm finding the bear charts to be less mature and so far more interesting, but the few bear signals in Wednesday's mix lacked the liquidity to support a bear position.

Bottom line: I won't be trading any of the potentials from Wednesday's list.

My shorter-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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