Trade Ideas for 05/07/09

With today's action, the S&P has gone so parabolic that the parabola has become recognizable on the daily chart:

Parabolas end in a blow-off top, and subsequently retrace a great swath of price in a short amount of time. They can last longer than you'd think, but they can't last long. They can go higher than you'd think, but the higher they go, the harder they fall.

The old wave count was already looking dodgy as mentioned yesterday, and today's action meant a substantial revision was necessary. The revised count shows that the uptrend has been made up of three distinct advances: a strong, impulsive start; a weak, ascending wedge middle; and finally a parabola finish. Unlike motive advances, the middle wave has been the weakest and shortest of the three: a true sign of a bear market corrective rally, not a new cyclical bull market!! When the parabola concludes, so too will (at least) three sets of C waves; and Intermediate A. (Previously, I had marked Intermediate A finished on April 17th, way too early.)

As for time cycles, today, May 6th, marked 120 days from the January 6th high, and midway between then and now was the March 6th low. There's a symmetry to the notion that today's high was a top of some degree, although without a pullback and with a close at the highs there's no price evidence of that. Hindsight has shown that 45 days from the March low was not a high as I had figured, but a low (April 21st).

We are net long, moreso after buying all of yesterday's long ideas, and this means being in protection mode with regard to the parabola. Tight stops is key. For DGP and DIG, the "ideal" stop is below breakeven, but I've moved it above to err on the side of safety. The ideal stop is given in the comments.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
DGP	18.68	19.34	+3.5%	18.79	Ideal stop 17.96	Chart
GOLD	45.56	52.68	+15.6%	49.25	Consider selling on a close < 51.69	Chart
NUE	45.01	44.31	-1.5%	42.99	N/A	Chart
DIG	27.67	28.70	+3.7%	27.79	Ideal stop 27.49	Chart
TMX	17.01	17.16	+0.9%	16.85	N/A	Chart

While parabolas can last longer than you'd think, I'm uncomfortable taking on new long positions except on an intraday timeframe. Short positions, on the other hand, become low-risk propositions. Short on a breach of the prior day low, stop at the uptrend high. Additionally, if a short is elected and does not close near the high of the day, consider taking profit on at least half the position at the close. This is because parabolas can last longer than you'd think!

New Trade Ideas

Ticker	Entry	Exit A	Exit C	Chart
SDS (Ultrashort S&P)	59.22	57.08	N/A	Chart
SKF (Ultrashort Financials)	47.51	42.29	N/A	Chart

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