S&P500 – The 2055, 2090 scenario – How to play

This is how I play my short position SPX, entered @ 2117, 1st target price 2055, stoploss 2083 and a trailing stop of 3% = 60 points.

The Target Price 2055 is based on Elliot Wave 3-3-3-2 down and the Green Trendline, support @2045-55.

The Stop Loss of 2083 is based on the Higher High of Friday @ 2081.9, JUL 9, a TTCM Date. If the short is stopped out due to the stop loss @ 2083, I still earn a decent return: 1.56% ($3.498).

Several things that need to happen to confirm the short term uptrend: stay above the Low of TTCM Date JUL 6 @2042.8 (a Higher Low as retest) and consequently break 2081.9. The SPX sets Higher Lows, but no Higher Highs yet. Remember,  This means that the uptrend is not yet confirmed. Higher Lows and Higher Highs is what you’re looking for if you plan to enter longs and/close shorts.

Regarding the Trailing Stop of 3% the following. The SPX trades inside the green trendchannel, which has a lower boundary @ 2150 and an upper boundary @ 2190. Or else said, a 40 point range = 2%. A new uptrend is confirmed when it breaks out of the trendchannel, so a move of more than 2%. A trailing stop smaller than 2% could indicate that your position will be stopped out while still trading inside the green trendchannel, and then I ask myself: why close a short position when it’s not confirmed that a new uptrend has started?

I will likely add longs @ 2050 area, stoploss 2039, 2nd target price of 2090.

For the full Elliot Wave analysis, Pattern of Trend, RSI, Cyclical Model and the CM indicator, click here.

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