Wednesday, May 27, 2009

Act II Underway

Today's high probably marked the completion of an x wave in the Dow and SP500 and a b wave in the Qs. Even though the Qs bested last week's high, it was on light volume and therefore not a valid buy signal. The recent two swing lows fell near or within the turn date window of 5/15 to 5/22 that I originally projected. Today's high fell on day 55 of the rally from the March 9 low. When a projected cycle date falls in the middle of a correction as this one apparently has, a good rule of thumb is that the end of the correction will create a symmetry around the cycle date. For the Qs, it is 14 days from the May 6 high to today's high, which projects a low on June 16. For the Dow and the SP500, it is 12 days from the May 8 high to today's high which projects a low on June 12. The post-election year cycle shows a low in mid-June, so we can now project with more confidence that the end of this B or X wave correction should occur between June 12 and June 19. I still am looking for the Qs to test the January and February highs before taking off in wave C or Y up.

I was stopped out of my short positions in EXPE and RIMM today, but am still short APOL, STRA, GME and long 1/4 QID and 1/4 TWM. I continue to hold long positions in HANS, ASIA, SOHU and a few others which I plan to hold through the correction. We will see if that works out.

My general rule is that I do not make discretionary exits until my targets are hit. I simply trail the stops as price moves in my direction. The key here for success is consistency. Pick one way to do it and stick to it. Trailing the stops reduces your risk and staying in the trade gives it a chance to work out in your favor. As an examply, APOL came within 0.96 of my stop at 65.75 on May 15. After making two lower daily highs, it formed a buy fractal pivot on May 19. I lowered the stop to 65.00. APOL closed today at 58.10 and with the market looking lower APOL is well on its way toward my target zone below 48.00.

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