After a brief hiatus on Tuesday the bulls were back and rallied the cash S&P500. Wednesday’s uptrending price bar broke through and qualified the TD Supply line and targets 943.17. We closed at 919.53. I must also highlight the fact that the RSI succeeded in pushing above the key 67 level. RSI range rules now show the cash S&P500 to be in bull mode – if you needed convincing.
Price action now supports the idea that the Level 1 Y pulse completed at Monday’s high and was quickly followed by the Z pulse low at Tuesday’s low (see chart). We are now in a new Alpha pulse. Since both the Level 2 Y pulse and the Level 3 Alpha pulse *must* end coincident with the completion of the Level 1 Alpha pulse we want to go short on the next confirmed change of trend. This would happen on a break below Tuesday’s 897.34 low.
When will the Level 1 Alpha pulse end? My timing work says we should top by next Tuesday. So we need to be looking for a top here. Today was the ninth TD Combo Sell Setup day (see yesterday’s post for the chart). With that setup “perfected” experience tells us that we can expect at least a short-term reversal of the up trend (or at least a consolidation) lasting from one to four sessions. The market also has a TD Demand Line at 891.41 that would be qualified today on a break below that level. A move below 903.95 would trigger a TD REI “sell” signal. All of these situations should be monitored for signs that a reversal has begun.
A long position (not to exceed 3% of the account balance) was indicated Wednesday when we moved above 907.75. The initial stop-loss on this Trend-Continuation trade was placed at 897.34 and expired at the close. This trade will be “validated” only if we open above the entry level and exceed Wednesday’s high. If we can’t validate we will exit the position.
Trading Rules (draft):
Trend-Continuation Validation
Trend-continuation trades are “validated” on the day after a qualified breakout. Stop-loss levels are identified as part of the validation process. For long trades:
1) If the open is below the TD Supply Line breakout level, exit at the open.
2) If the open is below the TD Supply Line and the bar closes below the TD Supply Line breakout level, exit at the close.
3) If the high fails to exceed the breakout day high then exit at the close.
A short position (not to exceed 3% of the account balance) would be taken on a move below 897.34 today. All such trades are hypothetical (based on the cash S&P 500; not a tradable contract) and do not constitute advice to buy or sell any instrument.
Trading Rules (draft):
Trend-Reversal Trade-Entry
Only initiate a trend-reversal trade-entry when the market has signaled that the current Level 3 Price Pulse has completed and that a new Pulse (in the opposite direction) has begun. Trend-reversal positions will always be thought of as being three units. There can only be one trend-reversal position held at any given time. Trend-reversal units will be treated as short-term units for stop-loss and profit taking considerations. Even if an initial trend-reversal trade is topped out, new trend reversal trades will be made as long as the time and price zones anticipated for the reversal have not been exceeded.
Profit Taking and the Short-Term Unit
The protective stop-loss on the short term units will be brought to no further than one tick beyond the three-day high or low once the new trade has been entered. Profits will be taken or a unit closed out when a Level 2 price pulse is confirmed complete.
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