Weekend Update 3/27/10

Futures and options are high risk trading instruments.  Thus my goal in trading is to manage that risk.  Sometimes that means sitting in cash (for what sometimes seems like forever) until the right configuration shows itself.  That's the current situation with the Vindicator, at least in terms of the way I intend to use it.  On short trades, the plan is to enter them when selling pressure exceeds buying on the buy/sell line and when the V Stoch has ticked down from a reading above 75.  The tricky part about this is that the V Stoch needs to show movement contrary to the indication on the buy/sell to generate an entry signal, and the market forces generating that movement need to be enough to get to the extreme reading without reversing the buy/sell line.
Currently the V Buy/Sell moved into sell mode at the close on Thursday and the V Stoch bottomed under 25 at the same time.  This is to be expected as the same bearish data that led to a crossover on the Buy/Sell should show up in the V Stoch.  Since then the Buy/Sell has pretty much held steady and the V Stoch has wiggle waggled upwards.  Only if we get that reading above 75 and the Buy/Sell remains in sell mode will I make a short trade based on the Vindicator.  However, we could very well see the Buy/Sell line cross again into buy mode before the V Stoch gives its signal, in which case I will continue to hold in cash and wait for a buy entry signal.  Sitting on the sidelines so far has not really meant a whole lot of lost opportunity, if you look at the last few trading days prices haven't made any really significant and sustained moves in either direction.  And even if they do while I'm waiting for the right spot, I'll gladly exchange missing parts of trends for high certainty of profit on the parts successfully captured.

   My EW count shows us at a the end of 5 waves up from the Feb 5 lows, which dictates a correction of some sort.  I have reason to be not all that confident in the EW count, but the fact that the Vindicator is flashing "sell" tends to corroborate that count.  A break of the lower channel line would further confirm things, that point is at around 1152 for Monday.  Potential downside on the correction is at the .382, .50 and .618 retracement levels which are 1124.50, 1108.50 and 1092.50 respectively.