Wednesday, 1 June 2011

European Update

There was an interesting comment on Twitter feed today with a trader considering shorting yesterday's breakout gap in the Dax, looking for the gap to fill. I often use a similar gap trading strategy and this did occur today in the ASX200. However, in this instance, I believe this is a real low probability trade given the recent base pattern that has formed in this market and across many others. When there is a genuine range expansion out of such patterns, the market is giving a loud signal of genuine strength. You must go with that move. Ranges beget price expansions. I thought this made for a good post and to show my current European setups.

DAX June 60mins:
Here is the recent 60min base pattern that has formed over the past 4 to 5 trading days under the 7200 level. Yesterday we saw a gap up that consolidated and continued to trend higher. I would not be fading this but looking to join the trend via retracements. Note the strong bullish divergences that formed on the low vs price. This market has transitioned from downtrend to base and is now breaking out in a new uptrend- once again don't fade unless scalping.

DAX June 60mins:
The bigger picture pattern is a clear corrective move off the high. Note that the low was formed at a perfect C=1.618A fib relationship. This implies a thrust right back up to the highs.

Eurostoxx 60mins:
I have showed this setup many times over the past few days. This is the "heart of the crisis" and yet the whole move off the high has been overlapping and corrective. Like the DAX, there has also been a strong breakout from a solid base pattern under 2800/2825 and the targets for this move are 2900 and beyond.

This pair was my major concern for the market. It is quite amazing but price has managed to hold the low end of the pitchfork posted here some weeks back (there was an overspill no doubt). The picture was looking scary but the 1.40 level held like a dream. Here is my initial post:

EURUSD 60mins:
We could be possible looking at a very good base pattern under the 1.445 level. I will be looking for a possible breakout trade in the ensuing days up to 1.46 and beyond.

In sum, I believe the higher probability trade is to go with the range expansion and gap after a solid base has formed. As traders, there is this tendancy to short something after it has had a strong move higher- I think you have to do better than that and really understand the market context.