(Click On Charts To Enlarge)
Regarding the Wolfe Waves, I like to see price get back to the bottom of Wolfe Wave after a Wave 5 fakeout before considering entry. I might cheat and get in a little earlier, but I want to see something that at least looks like a reversal, otherwise we can get caught in something that continually goes lower, and lower, and lower, like the UYG did after I got out with a 3% loss. At yesterday's close of 4.60, my loss would have been 29%. YUK!
Chart #1: Yesterday morning, the SPX bounced off what looked like a possible Wave #5 fakeout low. I didn't like the market well enough to consider playing it, but it did break out above the pattern. Afterwards, it pulled back inside the Wolfe Wave (that's a flaw) then broke out again and got only to 864, which was also the first breakout high. Both highs were below the 865 Wave 4 high, which "should have" gotten taken out to the upside. Instead, the SPX went back inside the Wolfe Wave AGAIN and also broke the low (horizontal yellow line) of the first move back inside the Wolfe Wave after the initial breakout.
So, at that point, we had a failure to get above the Wave 4 high of 865, AND a move to a new low, back inside the Wolfe Wave? There aren't any hard and fast rules in technical analysis about where we should stop something out and where we shouldn't. This thing still "could have" continued higher. Those decisions depend on the individual analyst's read of what's going on, and individual tolerance for risk, etc., but that move below the horizontal yellow line sure looked lousy. The breakout was "supposed to be" bullish. I would have dumped it right there, even though it "could have" gone higher.
Additional confirmation that it wasn't bullish was the break below the bottom of the Wolfe Wave, and then the TWO failed retests of the bottom of the pattern.
Chart #2: Wolfe Wave Watch Redux. LOL. The SPX has a "possible" Wave 5 fakeout/breakdown again, but we don't have any evidence of whether it is or not unless/until the SPX at least gets back to and above the bottom of the Wolfe Wave. And, then there's no guarantee that the target will get MADE at #6 even with that evidence, as we saw in chart #1 above.
As with ANY pattern or with ANY trendline breakout or violation, it's a "plunk down yer money and take yer chances" if we like it well enough, but the MOST important thing when we do that is to MANAGE THE RISK. As I said, my long entry into the UYG "possible" Bullish Wolfe Wave turned out to be wrong, but I only lost 3% vs. the 29% loss, as that chart stands at yesterday's close.
There is NO method of trading that ALWAYS will work out. If there is, whoever discovered it isn't telling, and I wouldn't either ;)
6 comments:
thanks for the analysis, Melf. I didn't see the Wolf developing during the day. It was only yesterday evening while studying the chart that I noticed a possible Wolf and at that point, I was considering the Wolf as shown in your second chart, the one with the 3rd wave extended compared to a textbook Wolf.
Thanks for the guidance regarding when to take a position and how to place stops. I believe you're saying that if today the market were to move back to the lower trendline and break slightly above it, one could take a long position there. Stops would be placed below the market low, or perhaps below the lower trendline.
(I believe you're saying that if today the market were to move back to the lower trendline and break slightly above it, one could take a long position there.)
Greg,
Right. That would be fine.
(Stops would be placed below the market low, or perhaps below the lower trendline).
Right. For me, it all would depend on the risk involved, once the Wave 5 low was established, and once it could be seen where the SPX regains the bottom of the Wave.
Then monitor it along the way, of course. If we bought it then got something like what happened in this morning's Chart # (the failure back inside the top of the Wolfe Wave after the breakout), I'd sell it. That isn't necessarily "right." That's just what I would do.
Nice work on this one, and good luck!
Greg,
I also responded to your comment on the VPHM thread, in case you missed it ;)
yes, I saw that. Thanks for the gold star, I am proudly wearing it on my forehead all day today. 8-)
Market has broken above the lower trendline of the Wolf, but I am watching this one on the sidelines. Atilla is short and I can't figure out the EW count, so I hesitate to open a long position under these circumstances.
Watching and waiting...
(yes, I saw that. Thanks for the gold star, I am proudly wearing it on my forehead all day today. 8-)
Greg,
Hahaha...you DESERVE it!
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(Market has broken above the lower trendline of the Wolf, but I am watching this one on the sidelines).
Greg,
I'm only watching it, too. I'm not in any hurry after last Thursday's "Key Reversal" to the upside having been a fakeout. This looks like another fakeout in the intraday. The SPX is back below the bottom rail at the moment.
The Bullish Wolfe Wave in the UYG also was a horrible fakeout. It's currently at 4.17, down 36% from my 6.52 entry at the bottom of the Wolfe Wave. Yeesh.
The UYG also came darn close to reaching The Rectangle target of 3.67 that you've seen on my daily chart from the breakdown on October 6. That target looked unrealistically low at the time, but the UYG printed 3.87 today. Oh, my.
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