US markets were relatively flat overnight and consolidated recent gains. It is non-farms tonight so it is really important to remain flexible and follow the price action. We are coming into some significant resistance areas after the Eminis nailed the 1300 support level cited here two days ago. I have a few interesting setups lining up which now need price action to confirm.
One of my concerns currently is the weakening breadth figures despite price making higher highs. This is a warning flag. Since the March lows, we have seen the following closing readings:
21/3/11: 2473 NYSE advancing issues
25/3/11: 2265 NYSE advancing issues
30/3/11: 2212 NYSE advancing issues
31/3/11: 1761 NYSE advancing issues
Thus despite the S&P trading from 1260 to 1330 during this time span, the number of closing advancing issues is declining and not following through. This is not a short signal, but certainly this is a warning flag.
S&P 500 June Eminis 60mins:
The June Eminis are trading into my 1328/1330 target. There is a potential 3 Indians ending pattern lining up here into this zone. This setup was made famous by Linda Bradford Raschke in her book Street Smarts. Bottom line, price has made 3 higher highs yet the momentum indicator has made 3 lower lows- a strong bearish divergence. The entry for this trade is a bearish 15min or 60min reversal candle out of the resistance zone.
Dow Jones Cash 60mins:
The Dow Industrial and Transports have rallied right into their previous highs. This setups up a potential double top trade. Price has come along way since I recommended the double bottom trades in the middle of March: http://swingtradersedge.blogspot.com/2011/03/double-bottom-trades.html and http://swingtradersedge.blogspot.com/2011/03/double-bottom-trades-follow-up.html. The key to understand as ever is Risk/Reward. As traders, we need to be selling/getting flat into these levels and then reassessing. If there is no reversal, than we move on and look for breakout trades in the coming days after consolidation.
Industrials:
Transports:
Eurostoxx June 60mins:
The Eurostoxx is also showing a possible 3 Indians ending pattern. Last night we filled an open gap and closed right on a minor trendline. Any further weakness below 2835 should trigger a potential short entry with tight stops.
EUR broke out of the Flag pattern I have been monitoring which now targets 1.4250. I still think we are in a broader range from 1.40 to 1.4250/1.43 and thus we need to trade the range until a clear breakout ensues. The DXY double bottom trade is still in play but we need to see a strong close above 77 on the June futures for a strong entry signal in that contract.
EURUSD 60mins:
DXY Futures June Daily:
In conclusion, the trend remains up but we are coming into clear resistance levels with underlying breadth weakening on a non-farms night. As traders, I think stepping to the sidelines makes sense and look for bearish reversal candles to potentially short with tight stops. The bigger picture trend remains up and we will continue to look for buy setups should price come off or if consolidation patterns ensue.
Thanks
Austin
