Worried Bulls?

With yesterday’s sharp reversal to the downside the bulls should be worried. Meanwhile, we do have confirmation now that the X-pulse has completed at the March 17 low. Here is what I wrote in the March 1 entry of this blog when I described the state of the current price pulse model: “Where does the Intermediate Price Pulse stand now? It has generated a “short-term” sell signal by falling below the B-pulse low. Tony Plummer states that now we have to be careful in that the subsequent Y-pulse rally may abort the signal by retracing back above the B-pulse low point of 1327.04. However, it should not go above the previous A-pulse high of 1369.23 and then a “longer-term” sell would occur on any move below the X-pulse low (yet to be made). And so the Intermediate price pulse picture is negative.” Indeed the cash S&P500 has rallied to above the B-pulse low as the model predicts.

I have continued to develop the trading rules to be used in conjunction with the price pulse model. It all starts with the technical condition of the weekly chart (which is still on the sell signal generated in the autumn). The weekly technicals give us “permission” on trade direction. You can only trade short when the weekly chart is on a “sell”; only long when the weekly chart is on a “buy”. After permission has been granted by the weekly technicals you execute the trade when the Intermediate price pulse model flashes or confirms the weekly technicals. For instance, the weekly chart gave a technical sell signal on October 19, 2007. The Intermediate price pulse model confirmed that signal on November 7, 2007 when it broke below 1489.56.

After trade entry the issue becomes placement of the stop. Here I have decided to use Wilder’s Parabolic SAR from the weekly chart. If that is not applicable then the Intermediate term price pulse model shall be used. I will continue with this discussion tomorrow.