Closing in on the peak?

I have been on market topping watch for a number of months now.  The markets keep extending and extending as if controlled by an invisible hand.  But I'm not claiming manipulation.  I think all of this is normal in any herd.  Those in charge fight to stay in charge as long as possible even if they know that their ouster is the best thing for the herd.  You can call that manipulation but then you have to also realize that manipulation is normal human behavior.

CEOs do it to their companies all the time.  Politicians do it to their countries all the time.  And central bankers do it to the people all the time.  Police will tell you that shooting you is for everyone's best interest.  None of it as it seems.  It often gets carried to extremes and when it does it always finds a way to reverse itself.  But it can cause the topping process to take more time than it should.  The corruption has to eat away at itself from within, just like any other organized crime syndicate. 

So the only way to play is to set up models and triggers and see if the market knocks them down or rolls with them.  The chart below is $COMPX Daily candles and the inset is 60 Minute candles.  As the chart says, this looks suspiciously like a 4th wave.  If that turns out to be the case then it is the penultimate wave of the series and so one more wave higher should be expected.

Below is one guy's model for a symmetrical triangle which was taken from this site.  I chose it because it happens to look a lot like what is going on in the $COMPX right now.  The model expects the chart to move higher at this point.

Now, before we get too excited I went and researched that time period for Mosaic shares just to see what happened next.  As you can see, the author had incorrect preconceived notions.  Instead of breaking out like he thought it would, it broke down, back tested upward from below and then ran away at high speed.

My point is that the charts tend to get tricky at decision points.  If the herd senses too many crocs in the water waiting to pounce, it can quickly go the other way and find another crossing point at another chart location and time while not having broken any EW rules.  Nothing is super likely to happen until confirmed, and even then the herd can still turn around if the feeding pressure is just too great. That's why the trigger points are even more important than the formations themselves.  The formations tell you that there might be opportunity.  Putting yourself in the mind of the animal, the trigger points tell you whether to plunge in and hope you don't land on a crocodile or alternatively, run away.

Here's what we do know:

• If this breaks out of the top resistance line of that triangle after 5 rail bumps then it was a 4th wave and it should exit with 5 waves whose total size adds up to the shorter length of 1 and 3.  In other words, SELL if it breaks the top resistance line of that triangle.  In that case, look for one of these 4 ending scenarios:
•  It forms The Owl somewhere below 4370.  This would be a good honest ending for the 2009 bull run.
• It climbs up to 4400 and then goes into free fall.
• It skyrockets all the way above the top resistance line to form one final short-busting throwover that could end a 4440 or even 4444.
• If it does either of the last 2 bullets you might want to consider moving out of the USA...  I hear Belize is kinda nice.
• If this breaks down below the lower support line of the triangle, then buy or hold if you already bought.  Be very wary that this might be the throw under of a 4th wave triangle that immediately reverses and goes back up to do one of the actions stated above.  If, it breaks down, just set a stop above the top line and you will be safe from whipsaw as well as from getting caught short.
• This situation is actually a trader's friend because we should know quickly the next direction; the chart does not have to travel very far to hit support or resistance.

Having said all of that, I have one more variable to remind about: the old walk away in May.  The markets might try to extend the rally somehow into April, or at least extend the non-collapse into April.  The usual mechanism for this is to start forming triangles.  Those possibilities are too many to speculate too many chess moves in advance.  I'll just take it as it goes.  But at this point a clear near term trading plan has been established which includes actionable triggers.