Friday, 15 April 2011

IMPORTANT POST- US Markets bottoming

Good Morning All

The S&P 500 gapped down on the open, tested the key 1300/1305 support level, bottomed in the first 30mins and then rallied all day to close on its highs, filling the gap down. This is bullish action no doubt and was in line with the scenario I was following yesterday: The Eminis hit my target zone mentioned and also bounced very strongly into the close. A bullish hammer candle formed on the Daily right at the 55 exponential moving average. There was a strong breadth reversal with NYSE declining issues hitting a high of 2155 and then closing at 1376. Advancing issues were as low as 119 in the first hour and reversed to close at 1605. This is a strong reversal and indicative of a sold out market. Thus:

i) Have we hit good support levels- YES
ii) Has price respected these levels and reversed- YES
iii) Is there confirmation from breadth- YES
iv) Do we have good patterns to justify good risk/reward entries- YES
iv) Are the usual bearish suspects out calling a high/truncated top- YES

Thus, I believe we are putting in a significant low right here. The key short term support levels in the Eminis are 1295/1300 with resistance at 1320. I believe longer term swing traders should be looking for breaks of 1320 to the upside to get long targeting 1350 and beyond. The alternative scenario is that a longer term triangle may be playing out with a breakout possibly coming as earnings season draws to a close. Nonetheless, this is a great risk/reward area to be getting long. This market has held in despite social unrest in the Middle East, despite threats of a nuclear meltdown in Japan and more European countries going bankrupt. This is a clear signal we are in a strong bull market and I think any breakout will carry us all the way into August/September 2011 in line with a 2007 scenario I have been following for a while.

S&P 500 15mins:
Price tested yesterday lows and put in a significant price reversal closing above the previous days lows. This is a short term double bottom trade

S&P 500 60mins:
Strong hammer candle yesterday right at my target zone. This target zone is the 38.2 retrace level and the previous lows at 1305

Emini S&P 500 June 60mins:
Price has corrected down to this 1300 level in a clear flag pattern. The broader setup is a possible inverse Head and Shoulders pattern. Look for break of this flag to get long

S&P 500 Cash:
A hammer close yesterday right at the 55ema. The inverse head and shoulders pattern can be seen more clearly here.

Emini Nasdaq 100 June 60mins:
Does this look like an impulsive sell off to you? This is a great risk/reward pattern to join the higher degree trend which is up. Note that price made a higher low last night.

These setups confirm many of the bullish patterns I have been talking about in China, India, Hong Kong and Singapore.

For the Wave counters amongst you, below is a parallel scenario I have been following in the S&P 500 for a while. I believe this current advance has been very similar to that of 2007, and if this continues to play out, there is the possiblity of a very strong breakout and advance all the way into June 2011 in line with the end of QE2

S&P 500 Daily 2007:
The Wave 1 high in 2007 was made after a 4 month corection from the May 2006 high (note the parallels with 2010). The wave iii advance ended in Feb 2007 in a ending diagonal pattern. We then had a violent thrust down in March 2007 which proved to be a significant low.

S&P 500 Current:
The similarities with this current advance are striking. The current high topped right into the February window with a sharp pullback into March completing an ABC 4th wave down. I believe a strong breakout is coming soon indeed.

In sum, I believe the US markets are building a significant basing pattern. Breaks of 1320 to the upside would confirm this. If we see a pulback to the low end of yesterdays range, look to buy this with stops below yesterdays lows. If the market trades below 1290 then I think this bullish setup is invalidated.