Saturday 7/17/10 update

On the daily charts there are three main alternates medium term including the uber-bear "P3" scenario.  In the P3 scenario the price pattern from the late April highs is labeled as as series of Wave 1 - Wave 2's of decreasing degree, so that we would be teetering on the edge of a major 3rd of a 3rd of a 3rd wave right here, with that maybe having started yesterday. 
The other two scenarios look at the activity since late April as corrective to a longer term bull market, with the correction either done or close to done.  Here's the "close to done" count:

In this count we are in a final "C" (purple) of "C" (blue) leg of the correction that started in April.  However, that would mean that the rally up that completed late this week would have to be some sort of 3 wave affair by Elliott rules, but the hourly pattern is very difficult to count as an a-b-c.  It is instead very impulsive looking with 5 clear legs up.  So it's more likely that the "B" wave (purple) is not yet complete or that this count is altogether wrong.
Which brings us to the final alternate:

In this count the lows of July 6th completed the correction that started in April, with the rally into late this week being a wave 1 of a longer term bull market sequence, and the selling late this week being part or all of a wave 2 correction.  This is my preferred count, but the market being what it is it's only a preference, i.e. I'm not married to it. 
On an hourly chart the most likely wave count since July 6 looks like this:

For clarification, the 5th wave of the rally into the late week highs is counted as an ending diagonal.

On trading, the trendline/oscillator system generated a sell signal @ES 1068.25 at 11 AM (CST) on Friday. I've been planning to incorporate the Vindicator output into the trendline/oscillator system, and at that point on Friday the 30 minute V Stoch was at the lower end of it's range.  So instead of immediately liquidating the long ES's and switching to short ES a stop was placed 1 point below the low of the preceding hourly bar @ 1066.75 with the thought that a more favorable price could be had at a future spot.  However that stop was hit in short order so the long ES's were sold.  The long trade was entered on July 6th @ ES 1032, sold @ ES 1066.75 for a gain of 34.75 handles (@ $50/point).  Although this is nice it's not the most efficient trade that I've had from this system, both the entry and exit signals were a tad late.  Efficiency can be measured by the proportion of the run captured by the trade.  In this case the low at the start of the run was ES 1002.75 and the high was 1099.25, or 96.5 handles total.  An efficient trend trade should grab at least 2/3 of that span or about 64 points.  I'm hoping to utilize Vindicator signals to boost that efficiency on a more consistent basis.

On the Vindicator, the Sell line on the Buy/Sell Vindicator crossed above the buy line early Friday as would be expected, but the levels are not very strong in spite of the steady downward price spiral through the day.  In addition, the V Stoch bottomed and curled up by the end of the day indicating a possible retrace (or more) in the offing.

 
The plan is to short the ES on a retrace with the V Stoch as an aide in entering that short.  The market was pretty oversold at Friday close so a retrace is highly likely. Given the Elliott count and other factors, will probably set the trade up as a sell on stop with the stop being the low of the prior hourly bar.  The trendline/oscillator system is currently in sell mode with the oscillator on the verge of re-setting itself based on the down price action of the last couple days.  It's entirely possible that the wave 2 correction of the preferred count was complete at Friday's lows, in which case a retrace could turn into a rally and the trend/osc system could thereby generate a buy signal, in which case a whipsaw will have been avoided.  It's also possible that we'll just drop straight down from the open Sunday night, although the odds there are lower.  If that does happen it will be an opportunity missed from mid-day Friday and the trading plan will have to be revised.

One final note on the trendline/oscillator system.  Although it does have a proven track record, it does have a tendency to whipsaw at times.  The hope is to avoid those whipsaws by incorporating Vindicator signals into the trade plan.