As most of you know the Daily chart of the the SPY has presented us with a very nice Elliott Type One Buy and was triggered on June 25th using an aggressive entry. As a reminder an aggressive entry means that we are simply waiting for a break of the regression trend channel and not necessarily a close. While during mentoring we have talked in length about the conflict between the daily and the weekly charts this trade should still have been triggered and entered as all 4 rules of the Elliott Type One were met. My colleague Nate McCartney made an excellent post on the conflict a few days ago and I highly suggest you read it as it has been a focus of discussion in most mentoring classes it seems. http://www.agetblog.com/tradingtechniques/2009/06/time-frame-conflict.html
As far as the Type One goes we are now hitting some very key resistance levels that you should be made aware of. In mentoring we have covered how to use the Ellipse (to steal a term from medicine) in an off-label use. By drawing the Normal Ellipse from Wave 3 to Wave 4 we can get an idea of where our Gann Resistance lies in the Wave 5 Rally. As you can see we are at a level of concern for multiple reasons. First it is a match of the previous highs from early and mid-May, second we could be forming the right shoulder of a classic head and shoulder pattern which could signal a reversal. Either of which tells me to take initial profits on our longs and to adjust stops in case this reversal occurs.
If the reversal occurs we are covered and will be profitable on the trade, if it does not occur then we continue the rally and we are still covered. It's a win - win scenario. If this Type One Breaks down meaning that the PTI drops below 35, the Oscillator retraces more than 140% or the Wave 4 channels are violated then we can shift to the Weekly chart for the Type I sell that is presented.
Ron Wheeler
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