Today was a truly volatile day and ultimately it shows the importance of being prepared, trading the levels, and most importantly the need for good risk control. Certainly I was not expecting the ferocity of today's sell off but I did have a plan to join the momentum when the cited levels broke. This was all highlighted in my Asian morning thoughts. If I could give any advice in these kinds of situations it is to not panic, be very aware of your own personal sentiment, and step away until a good setup materialises.
I wanted to split this post into 2 main parts. Firstly, I wanted to discuss some of the setups today, how these were tradeable and improvements going forth. Secondly, I wanted to analyse the charts and see where today's action leaves us.
There were 2 very simple short term breakdown trades in MSCI Singapore and Taiwan. The key levels stressed this morning were 3550 and 8500/8450 respectively. MSCI Singapore opened as low as 3542 and immediately attempted to bounce. This bounce gained no traction and we soon broke through the opening low price thus offering a short term entry. The 5min chart clearly shows the entry. Equally, Taiwan opened right on the 8500 level but failed to bounce offering a short entry on the break of the opening low. An additional position should have been added to on a break of yesterdays lows.
MSCI Singapore Futures 5mins:
Taiwan Cash 5mins:
They key to these breakdown trades is being able to sit with the position. All overbought/oversold indicators have to be turned off in these high momentum moves. Traders should look to cover at either a clear target level namely 3500 in MSCI Singapore, look to cover on a exhaustion candle, or cover after evidence of a bounce has materialised. Use the moving averages to keep you in the trend. The real money is made by sitting in these positions and being able to ride the move lower. Note that in both these examples, a low was formed only after a successful retest of a previous low point. It is tempting to bottom fish but this is expensive until the evidence becomes clear! I have always found that I learn the most when I go over charts and study how I could have traded the setup better. I recommend you do this here also.
Given the huge amount of volatility, one has to be flexible and making longer term predictions at this point is futile. Nonetheless, as ever we must continue to look for setups and gauge what the charts are highlighting.
The ASX 200 traded down to a low of 4479, just 8 points shy of the 61.8% retracement. I did stress the importance of the 4585/90 level in the SPI this am and it just couldn't hold. For now, we are still very much in a downtrend but this is a panic situation no doubt-not an area to be building longer term shorts. I still think this is climatic but there is no point calling for a low yet until we see follow through or a base of some sort. This remains a traders market for now I believe. Key SPI support levels are 4470 with resistance at 4560
ASX200 Daily:
Taiwan closed solidly below the strong support area on good momentum. This is possibly the beginning of a new trend down thus we should be looking to short the first pullback on the lower time frames with stops back above 8400
Taiwan Daily:
MSCI Singapore has now closed down through a bearish flag pattern after failing at the previous breakdown level. We are coming into potential supports at the 61.8 retrace but for now we must continue to look for sell setups into this downtrend.
MSCI Singapore Daily:
AUD has sliced through the supports I mentioned last night. This now sets up for a potential "failed triangle" pattern on the Daily. Momentum traders should join the breakdown here.
AUDUSD Daily:
This is one chart that really does concern me. AUDJPY is breaking down out of a clear ending wedge pattern. This has a very strong read across for risk assets if it continues to fall which is implied here. Note that a very similar pattern emerged in 2007/2008 in this cross.
AUDJPY Daily:
In conclusion, today we saw strong breaks of support in Taiwan and Singapore. AUD is also breaking down out of a triangle pattern with very bearish implications. No doubt this may be overdone in the short term but we have to follow the momentum lower until we see a climatic pattern.
Obviously tonights open will blow out the potential supports I had been monitoring in the S&P 500. This is the reality of being a trader and we have to move on, look for new setups, and trade accordingly. There are a myriad of options at this point and I dont have a clear view until the US markets open so I will update then.
Thanks
Austin
