Trading the Dow Stocks Bear Market with the Complete Speculative Landscape

By: Joseph_Russo

Five Levels of Engagement - After a brief update on the Dow, we will share with readers the five levels of tactical engagement, which drive our market guidance and summarizes the working architecture behind Elliott Wave Technology's forecasting disciplines.

Update on the Dow

Last week, we had mentioned the tentative low (7909) in January. The smaller set of “upward” Fibonacci retracement levels previously added are providing us with clear information relative to the market's near-term condition. Thus far, the Dow has sternly rejected price as it back tested the larger broken speedline of former support. Prior to collapsing just above a modest .382 retracement rally, the market reached its latest interim peak on Wednesday January 28. Wednesday's print high of 8405 quickly succumbed to over 400-pts in losses on Thursday and Friday. Though still holding, the price action of last week strongly suggests that the January low is likely to fail in the not too distant future.

Levels of Engagement

Over the years, we have routinely reported on the fast-paced excitement surrounding short-term trading accomplishments, and more recently on the powerful strategy of capturing medium-term moves in bridging the gap ; however, we have yet to explain just how each of our tactical approaches are designed to integrate and work together as part of a larger strategic trading operation. Although each level of operation trades effectively as a stand-alone strategy, like Elliott Waves, each of them also comprise elements of larger sequential design.

Level–I - Core Cyclical Positioning

Our fully integrated trading models begin with secular and cyclical assessments of long-term price data. We then execute a methodical technical approach from which to express either a cyclically bullish or a bearish opinion within a given market. As of January 2007 for example, our long-term cyclical assessments turned bearish on the Dow just above the 12,000 level. For the last year, our largest governing core position has been engaged on the short side of the Dow. It will remain there until we observe a reversing cyclical shift.

Level–II - Hedging Long-Term Cyclical Postures

The next level of our strategic model addresses the primary trends residing within the context of the larger cyclical trends. Though they may not affect the direction of the dominant trend, primary moves can be rather substantial. As such, our primary hedging strategy intends to protect and even profit from market movements counter to those positions held in Level-I core accounts. For example as of November 2008, speculative countercyclical hedging operations remain justified in holding long positions in the Dow from the 7650 level. This versatile hedging strategy not only protects, but may also enhance core account performance by trading in the same direction vs. limiting its operation to only taking trade's counter to those held in Level-I.

Level–III - Supportive Medium-Term Hedging Operations

We discussed this level of strategy in bridging the gap . Similar in purpose to the previous, Level-III supports, protects, and enhances operations taking place at one level above. The tactical approach of this operation addresses the smaller to medium-term trends that reside within the context of primary trends. As a stand-alone strategy, Level-III is well suited for those wishing to engage from a distance. Level-III does NOT require one to monitor price-action during the day.

Level–IV - Short & Medium Term Speculative Opportunities

Without exclusive regard for trend, this level of ancillary engagement focuses on identifying a multitude of measured trade triggers in either direction. The tactics comprising this strategy are visual, providing clear price targets, defense boundaries, and risk levels. At their discretion, traders with clear vision of trade trigger locations may then accurately assess risk vs. reward in order to make best-practice judgments as to which they will take action on. This level of engagement is generally suited to those with moderate or frequent daily access to real-time charts.

Level–V - Short-Term & Day Trading Disciplines

Level-V is also an ancillary operation in the grand scheme of things. It consists of a proprietary short-term/day-trading model that delivers concise one-hour advance notice of entry and exit signals throughout the course of each trading session. Although we consider engagement at every level speculative, day trading is a highly accelerated form of the art. To control the mayhem inherent in such endeavor, our model is predominantly mechanical in nature. A disciplined methodical approach takes the emotional guesswork out of an otherwise shell-shocked war-zone-like environment, and entrusts most of the decision making to the steady hand of a proven mechanical framework. As with all speculative endeavors, periods of poor performance and drawdown are part of the discipline. This level of engagement requires that one have access to live intraday charts throughout the entire trading session.

The Complete Speculative Landscape

In our total commitment to keep one-step ahead of the entire speculative process, we go to great lengths in continually plotting course of the entire trading landscape for all time horizons. Doing so enables us to assess which strategies are currently working, which are muddling through, and which are languishing. Maintaining impartial resolve to such discipline allows us to deliver large profits without self-aggrandizement, and engender caution where necessary to stem losses amid situations of challenge.

Trade the Super-Cycle IV -Wave

To safely speculate on, and effectively trade the endless array of unfolding subdivisions forthcoming in SC-IV, one may subscribe to our premium technical publication.

The express focus of Elliott Wave Technology's Near Term Outlook is to help active traders anticipate price direction and amplitude of broad market indices over the short, intermediate, and long-term.

Over the past three years, we continue to hone the art of dispatching tactical trade set-ups and market forecasting into a consistent, impartial, and immensely rewarding endeavor for those who take the time to embrace it.

We deliver this unique blend of proprietary charting protocol daily, with the express intent to convey timely and profitable information. Our daily reports impart strategy-specific guidance , which strives to calibrate market impact relative to a multitude of trading signals that are in direct alignment with strategies provided by the author.

Regardless of one's level of trading experience, users should allow sufficient time to become acquainted with the authors charting protocol, and tactical narratives prior to taking positions.

Communications 2009:

To more effectively convey dynamic trading conditions relevant to our technical publications; we are soon planning to launch complimentary E-letter briefings for anyone interested in following our work. E-letter dispatches will briefly summarize tactical trading postures across various time horizons and trading strategies. The theme of our maiden E-letter will reveal how to sell at major tops, and buy at critical bottoms. Those interested may email us to get an early seat on our mailing list.

Trade Better / Invest Smarter...

By Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology
Email Author

Copyright © 2009 Elliott Wave Technology. All Rights Reserved.
Joseph Russo, presently the Publisher and Chief Market analyst for Elliott Wave Technology, has been studying Elliott Wave Theory, and the Technical Analysis of Financial Markets since 1991 and currently maintains active member status in the "Market Technicians Association." Joe continues to expand his body of knowledge through the MTA's accredited CMT program.

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