Trade Ideas for 04/30/09

The S&P ran up at the open, and after the Fed announcement made new uptrend highs at 882 before falling into the close. The new high changes the wave count, potentially on a large scale. Either the market is in "climb the wall of worry" mode and set to take off for new highs, possibly to pull back to this price area as a support level in the future, or this is a double top in the making, the effect of which was to instill complacency in the bulls and slaughter the bears. There are good arguments for both cases.

To me, the two scenarios hinge on how one reads the tape since the prior uptrend high of 4/17. After an intraday low on 4/21, the S&P made its way to new highs today. The chart shows a clear five-wave pattern.

Under the bullish scenario, this move up would be part of the uptrend (presumably as wave 1 of the next advance) and therefore must be interpreted as an impulsive advance. However, waves 1 and 4 overlap, which is not allowed under Elliott Wave Theory except in the case of diagonal triangles. The pattern of this uptrend doesn't fit the description of a triangle: it's more like a regular parallel channel, which suggests that this is a complex corrective 3-wave pattern rather than an impulsive 5-wave. And that would suggest that although new highs were attained, it was nevertheless part of a corrective move. Note, too, the length of time it took to attain marginal new highs: 7 sessions to recover the price lost last Monday. This is not the hallmark of an impulsive move. My count therefore shows that we have completed (or are near completing) the B wave of an expanded flat, with the C wave yet to unfold. This was a count I alluded to in the weekend post when I mentioned the market might like a run to the 880 level, to sweep the remaining bears away. If the market manages to rise impulsively above the new highs before going below S&P 823, it would invalidate this count.

Today's rally certainly swept away our short positions. Gold, however, survived a fast drop.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
DGP	18.68	18.87	+1.0%	17.96	N/A	Chart
GOLD	45.56	48.69	+6.9%	46.14	N/A	Chart

As easily as the market could drop sharply from here, it could also take off from here, following an impulsive count that reveals itself in hindsight. Either way, the opportunity appears promising. Therefore, I have one long and one short idea for tomorrow.

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
URE (Ultra Real Estate)	4.14	3.25		Chart
SKF (Ultrashort Financials)	59.72	55.21	54.42	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.