SPY and Resistance (Part II)

While we no longer have an Elliott Type One trade on the SPY we do have a very clear cut False Bar Stochastic Trade that his triggered back on July 9 at the cross of the Regression Trend Channel.  

This scenario has led to a little bit of confusion this week in our mentoring program by more than a few traders.  It is important to note that while the Elliott Type One Trade and the False Bar Stochastic are based on similar Elliott Patterns they can occasionally conflict with each other.  This is due to the number of bars that each trade is taking into account in the strategy.  For example, our default Elliott Wave Counts are looking at the last 300  bars while the Stochastic is typically looking at 28 bars and up.

If you have taken advantage of this latest move on the SPY now is the time to adjust your stops and take initial profits.  The Ellipse that I am showing has been drawn from the trend high on June 11 to the retracement low on July 8.  Using the Ellipse in this manner has been shown in the past to be a very good predictor of where new trends may fail in their attempts to make new highs.

If you remember I posted a similar method back on July 1st on our first attempt at new highs before the market ultimately made another new retracement low.

http://www.agetblog.com/tradingtechniques/2009/07/spy-and-resistance.html

 

Historically the Elliott Type One trade is a little more reliable then the False Bar Stochastic due to its stringent rules (PTI, OSC, Wave 4 Channels).  The False Bar Stochastic Trade gives you more trading opportunities with it's much more basic rule set.  The beauty of the Stochastic trade is that we can make up for the slight difference in dependability with a more strict money management plan, just like the one I pointed out in the current example of the SPY.

Ron Wheeler

Comments

[Terry Felter]

I'm not sure why you indicate that we don't have a type one buy in SPY. What rule or rules were violated? The red channel held, oscillator was right at the 1.4 level and price only 35%.
What am I missing Ron?

[ronwheeler]

It was close, but on July 13th the Oscillator did pull back past the 140% level. While it wasn't a substantial break it was technically outside the ruleset for the Type I.