Tuesday, 30 August 2011

Feeling Tired

No charts here tonight but just a quick ramble. The Australian market is beginning to feel tired. I know I stressed in my previous posts that now is not the time to be too bearish. For one thing we have rallied quite considerably since those posts. More importantly however, the price action today and during the last few sessions is indicative of a market in a distribution process. Asia has had a number of positive overnight leads from US markets but there has been a genuine lack of follow through. Today we gapped up on the open to test the previous interim highs at 4300 on the SPI futures and topped in the first minute of trade. The market sold off all day closing on its lows. It looked like a clasic bull trap. One bad session overnight and I fear we could be looking at a quick 4-5% decline.

From where I sit, there are not many accounts doing anything. Most do not want to chase this market up here. Volume has completely dried up with only $4.4bln through on Monday despite a 1.5% rally. The Banks have failed to catch a bid for over a week now. RIO does not want to breakout to upside. Energy names like WPL are just not heeding the rally in crude, a bearish divergence. The strongest sectors for the last 2 sessions have all been the defensive sectors namely property, healthcare and utilities. Bottom line, the initial euphoria that saw us rally very strongly off the climatic low seems to have firmly dissipated.

Australia was the first global equity market to bottom in early August. We led the global rally. Again on the 17th August we led global markets as the ASX200 was the first market to put in a interim high before a big sell off ensued which saw the S&P 500 retest its lows. Everything was set for a strong gain today but the market swiftly reversed closing on its lows.  Are we witnessing a lead indication from Australia once more in equities? Dont rule it out.

I am not saying that we are on the cusp of a major sell off. I am however very cautious in the short term. Both the Eurostoxx and the DAX have failed to rally meaningfully which makes me think they are both consolidating before a final thrust lower. Interestingly, despite the rally in US indicies, the credit markets continue to worsen and the TED spread continues to widen. One of them will give and the credit markets have a habit of being way smarter than equity folk.

Good luck. I am looking at good resistance in the Eminis at 1200/1210 tonight. Any more above 1215 and I am probably wrong in cautiousness.

Thanks
Austin




Thursday, 25 August 2011

My Experiences in 2007

They say that experience counts for everything. I couldn't agree more and I believe this is particularly apt in the world of trading. In this post I wanted to reflect on some of my experiences as a relatively young trader at a major investment bank as the market topped out in 2007 and 2008. In that small timeframe, I was privy to the unfolding of a number of historic events that would shock and change the financial marketplace. I witnessed the full cycle from bull to bear and the complete range of emotions from euphoria to outright fear. More importantly, I saw how the market developed and unfolded from a technical perspective. As each day passes currently, I feel I am reliving many of these moments and experiences.I wrote about some of this in a post back in June and this has played out with eerie precision thus: http://swingtradersedge.blogspot.com/2011/06/party-like-its-2007.html AND http://swingtradersedge.blogspot.com/2011/06/topping-pattern-anyone.html.

I didn't have the experience back then in 07 to effectively trade that environment to my full potential and this has certainly shaped who I am and how I trade today. I hope these words can in some way can give you a vital bit of information to prepare you for the times ahead.

Markets always seemingly look their best at their highs for the unsuspecting.One by one, topping patterns slowly creep up on you. The S&P 500 made its high in 2007 not so much with a bang but on a whimper. The initial move out of the high grinded lower. It was only slowly that the mainstream heard of credit stress and the subprime debacle, the strains in the interbank lending market, hedge funds going underwater and mass redemptions hitting the market. It was only after all this occurred that the economic data began to soften. 2 months out of the high and we were in a full blown sell off. The central point to make is that this fear and panic reached a crescendo very quickly out of the high in 2007 just as it is now. By the time the market had become fully aware of the problems, the move lower was done. Just when it really felt like the world was ending, the S&500 bottomed on the 38.2 retrace in Jan 2008. This was 4 months out of the high. A long slow painful grind ensued for the next 3 to 4 months. I remember this grind higher very clearly- everytime I tried to short, the market just keep going higher. This is what intermediate rallies do. They frustrate and they do their best to remove the last remnants of the bears. The best times to be short are never in the panic stages but a few months after the panic low.

Fast forward to today and we are seeing the same kind of headlines and the same technical backdrop.The initial move out of the S&P500 high grinded lower. Just as we saw signs of credit stress in 07, we are now seeing severe debt stress for sovereigns and CDS are blowing out to all time highs. Mutual fund outflows have been hitting the market and hedge funds are getting decimated or closing up shop (most notably George Soros returning money). The economic data is also clearly softening now. And once again, fear and panic has reached a crescendo very quickly. Anyone and everyone is now talking about the end of Europe, the debt problems in the US, an imminent market crash, the death of the consumer etc etc. But markets just do not work like this. The best time to be short is never 2 to 3 months out of the initial high. In 07 we made an important intermediate low at the 38.2 retrace after a 4 month sell off. Currently, we bottomed at 1102 right on the 38.2 fib retrace after a 4 month sell off from the high. Coincidence?

Don't get me wrong- there are a lot of topping patterns across markets in the bigger picture. However, these have played out on a short term basis. Don't be that jittery trader who thinks the world is coming to an end. Making money on the short side is actually very difficult to do and you have to be very nimble and opportunistic- not when the crowd is all leaning the same way.

Australia has seen its panic low. Just as I saw genuine fear in 07 and capitulation, I have seen the fear and capitulation now. I talked about this on this blog as it was playing out. I believe this bounce is all part of an intermediate rally that will last at least 2 to 3 months at a minimum. Technically and fundamentally, everything has lined up for that low. I think this rally will be across Asia and the US. This will be choppy and volatile no doubt so there should be ample time to get involved. The double bottom patterns I showed on my last post have worked a treat as an initial entry point.

Now if my experiences and lessons drawn from 2007 are correct, this rally will lead to a momentumental shorting opportunity. But that time is not now.

S&P 500 2007 vs Now
The moves thus far into and out of the high have been uncanny. This simple chart has guided me through the high and recent low. If my take on the parallel is correct, we have seen a climatic low as shown by the red arrow. I believe we are on the cusp of an intermeadiate rally that will last for 1 to 2 months as shown by the green arrow.


This chart was brought to me and updated by my good friend and pro trader, Rich Sexton at: http://marketletters.blogspot.com/. If you trade the FX markets, you must read his blog- daily.


Thanks
Austin







Friday, 19 August 2011

A Fade Indeed

Happy Friday

We got the sell off last night out of the top end of the range as I had hoped. Interestingly once again, Australia was a lead market for our worldwide peers as we put in our high (at the 4300 level :)) prior to the global sell off. This market remains technically driven. Just as the S&P bottomed at the Fibonacci 38.2 retrace off the 2009 low, the recent short term high at 1208 the other night was right on the 38.2 Fibonacci retrace off the May 2011 high. These numbers do not lie. Once again, it all boils down to identifying the low risk trade. I talked about fading at the top end of the range in my last post because there was such a strong area of resistance and a great low risk short entry. This trade has now played out: http://swingtradersedge.blogspot.com/2011/08/is-this-fade.html

Just a quick note on last nights sell off. The S&P 500 cash market gapped down on the open and then went sideways for the remainder of the session. This is not wholeheartdely bearish to me vs what we have seen of late where the market opens on its highs and trends lower closing on its lows. Today is option expiry and I am told that there was a huge open interest in the 1150 strike (5x the normal open interest). It is little surprise to me that we got to this level so quickly. Breath was not as intense as what we have seen in the past with volume of 1.5bln on the NYSE vs the 2bln we saw as we approached the lows. Thus all in all, I do not think this is the end of the world move. I think that we are looking at a normal retracement/retest of the prior rally. This will provide another great buying opportunity in time but we are not there yet. My levels in the Eminis for a potential turn are 1125 and 1100.

So to Australia. Sure enough, a number of the underlying stocks failed at the open gaps/previous breakdown levels i.e. BHP at 40, CBA at 49, WES at 30 etc. This coincided with a perfect bearish reversal out of the 4300 level in the SPI futures. All written here in this blog. So where to from here? I believe that we have a climatic low in place. Thus, our highest probability trade is to buy the retracement out of this recent high. This is easier said than done but I am looking at 4100/4080 and then 4000. I do not know which of these levels will prove to be the low just yet but I imagine we will need more time to form a tradeable low than just a 3 day pullback.

SPI day session 60mins:
This is the chart I showed the other day. A great reversal out of the 4300 level and ending wedge pattern. Note the 3 peak patterns that was the precursor to this topping pattern. Learn these setups.

SPI 60mins:
These are now the targets for the pullback. I think we will need more time before a solid low can form but bear these levels in mind for now.



Looking across Asia, there are a number of great double bottom trades forming. Get ready to buy a confirmed rally out of the previous lows. This would coincide nicely with an Eminis double bottom and a fib retrace in Australia.

Nikkei 15mins:
The central bank is allowed to buy index ETFs as part of their mandate to support the market. This is a great double bottom trade. Do not fade this intervention at such a good buying level.



HSI 15mins:
Another good double bottom trade lining up here soon:

India Daily:
Looking at a great A=C trade here into support. Look for a bullih Daily reversal candleto confirm



Today I am looking at 4080 and 4100 as supports in early trade for the SPI futures. I dont think we see a strong rally out of these levels given it is a friday and given the overnight sentiment. However, as ever, buy support first and sell it if it drops.

Thanks
Austin


Tuesday, 16 August 2011

Is This A Fade?

Morning All,

The SPI futures are indicated at 4295 on the open this morning given last nights positive session in the US. We have obviously seen a V shaped bounce off the recent low and yesterday we saw major outperformance in the cyclical and material sectors which is indicative of increased confidence and the hunt for beta. However, V shape bottoms are very rare. It is tough to fade a strongly trending market but a number of underlying stocks are now testing their previous breakdown levels/open gaps. For instance:

-BHP at 40
-RIO at 76/76.50
-CBA at 49.50
-WBC at 21/21.50
-WPL at 40
-STO at 12.25
-WES at 30

These are significant barriers. There is no hint of a blowout top or bearish reversal yet but I would be very surprised if this market keeps surging from here. Australia was the first market to bottom and will it now be the first market to put in a short term high?

The key futures levels I am looking at is 4300 and then 4320. I will be looking for some kind of bearish confirmation/reversal candle first before getting short. No doubt I am fading the short term trend here, but just as we had to be willing to buy it when no one wanted it, we have to now be willing to sell it when everyone wants it. This is a short term trade only!

SPI Day Session 15mins:
This is the overhead resistance zone and we are now clearly testing the top end of the range. A good risk/reward area for shorts.Note we have seen 3 clear peaks/surges into this level- a favourite reversal pattern of mine.



I am seeing similar patterns in a number of overseas futures markets as well i.e. testing the top end of range. I think the trade is to fade first and then join the breakout if there is no confirmation.

Emini S&P500 15mins:
S&P500 into solid res at 1200/1205. Possible wedge? Sell first, buy if there is no follow through

Eurostoxx 15mins:
Same kind of pattern. A base is forming here under 2350 but we sell resistance first and then buy the breakout if there is no follow through

In sum, if the market is going to fade in Australia, it is here today. A number of the underlying stocks have now met or exceeded their targets. Tuesdays are my reversal day and we are coming into some significant levels. It remains to be seen if the market does actually fade.

Austin




Monday, 15 August 2011

Reflections On The Week That Was

Morning All,

I know I am a cynic. I read the weekend papers and I cant help but cringe. The sensationalism, the drama, the retrospective reasoning. Anyone reading the financial press last week and this weekend would have thought the financial world had just ended. To be sure, the headlines have certainly changed and it may feel like we are on the edge of a precipice, but really the market continues to repeat identifiable patterns and characterisitcs. We talked about the topping patterns across assets here on this blog long before the market broke. We had the capitulation low right at 1102 fib support. There was a perfect retest of this area at the end of the week for a great double bottom trade. Despite the news, despite the volatility, nothing we are witnessing has not already happened before in the market, and the technicals continue to be the guide. It all comes down to experience, identifying low risk opportunities, and being able to put emotions to one side.

We begin the week in Asia with a nice gap in Australia and across most of the region. However, the All Ords is well advanced in its rally vs the rest of Asia and is now testing decent overhead resistance. See the chart below. We did not get the depth of the pullback that I was hoping for last week which makes me think that we may see some short term weakness out of these current levels. V shape lows are very rare (and very difficult to join). There are a number of stocks that are testing overhead gaps and the previous breakdown level- thus this is an area to be cautious and looking for potential resistance/fade trades.

ASX200
4240/4250 is the 38.2 retrace off the high and a previous important high prior to the breakdown. I do think this thrust can go as high as my zone "2" in time but this first area should be significant. I would be waiting for confirm before shorting here though as V shape lows can keep going and going. I do not think we trade as low as tuesdays lows so be very nimble with any shorts.

SPI Futures Day Sessions 60mins:
Open gap and possible wedge type pattern. Note there is a good looking breakout trade in the eminis tonight above 1185 which could invalidate this.


A number of people have asked me what my long term thoughts are given the recent action. To be honest, I really do not know and I don't want to try and predict. This is why I choose to be a trader and not an investor. So many traders fall apart when they try and project beyond a reasonable timeframe. This market continues to look like my 07 parallel and if this is indeed the case, then we are no doubt set for some very tough times indeed. Who knows if another round of QE3 takes place though that completely changes the game. Whos to say that the short ban does not extend beyond Europe thus altering the dynamics of the market? We do have topping patterns in the S&P500, the Nasdaq 100, the ASX200, AUDJPY, AUDUSD and Crude. Thus for me I would be using decent bounces into the end of August/mid September to really position on the short side. The best times to be short are never after the initial panic as I keep saying.

Thanks
Austin


Thursday, 11 August 2011

The Test

Morning All,

The volatility continues. I said yesterday that I was out of stocks as the snapback trade had played out, and that I would welcome any overnight retest of Tuesdays lows. Well here it is. To me, it seems everyone sold the bounce in a deemed "dead cat bounce" last night. This is now setting up some great test trades and double bottom trades in Asia today.

The SPI is indicted around 3995/4000. I could see us testing 3970/3975 pretty quickly on the open. I will look to buy this level first and ff this level does not hold, there is room to fall all the way down to  3900/3875 so be nimble and willing to short intraday if we don't hold early. For the bigger picture traders, the next 2 days are great buy opportunties with stops vs Tuesdays lows. It is that simple really to me.

SPI 5mins
These are the intraday levels for the SPI. I don't think we will retest Tuesdays lows so I am looking to buy the Fib retraces. It goes without saying- be nimble.

Given the hammer and bullish reversal out of the 61.8 fib level, you have to buy this dip in Australia to me today offering a great risk/reward trade. Note what happened in March 2010 at a similar juncture with similar characteristics.

All Ords Daily March 2010:
Note the hammer, 1 day follow through followed by a retest of the low that held. I think this is where we are at.

And now:

I am also looking at 1115 and 1100 in the S&P Eminis. We will see pullbacks today of course across Asia and I would be looking for test trades across these markets.

Thanks
Austin

Wednesday, 10 August 2011

What A Day

Yesterday was one of the best trading days of my life. No one likes a gloater but I do think reflection is really important for development and for reaffirming all the positive things we do in this trading game.

Everyone was doom and gloom yesterday. People were talking market crash, runs on banks, P3, forced liquidation etc etc. Now I am not saying that I was not immune to these fears but the simple matter of the fact is that I have been here before and I know these moments present huge opportunities doing the uncomfortable thing. As a trader you have to think differently from the rest and really understand how the market works. The best time to be short is never AFTER a panic move out of the high. You have to to do the analysis, have a plan and put emotion to one side.

If you believe in the power of technicals than all the news and rumours should mean nothing. I titled yesterdays post 1102. The low for the S&P500 cash last night before a 70pt rally was 1101.60! Technicals mean nothing you say? It is all about how you manage yourself. I just sold my long emini position at 1176.50 for a huge overnight gain (I think my biggest ever). Look at how the All Ords reversed out of the 61.8 fib retrace. The papers will give you this reason and that reason for the rally but the simple matter of the fact is that this level was right there for you BEFORE the event happened.

Here is yesterdays post before the huge reversal: http://swingtradersedge.blogspot.com/2011/08/1102.html

So the snapback has occurred and we have seen a 3% gap up today in Australia. I have just sold the long basket of stocks purchased yesterday. I am sure I am probably early but the trade has played out. The market will do 2 things here I believe- we could retest yesterdays lows once more and this would present a great buying opportunity. If we do not get this test tonight in the S&P500 then I think we will grind higher for at least a week or so and look for targets of 1200/1220 S&P500 and 4300 ASX200. We also have strong hammers in confirming markets such as Copper and AUDUSD. This market is set for a good bounce in coming days/weeks so get positioned if there is any panic retest tonight.

ALL Ords Daily:
The low right on the 61.8. This market has put in a BIG swing low.


S&P500 Daily:
The low right on the 38.2 as forecasted at 1102



Eurostoxx Daily:
The low just beyond the 61.8 retrace. I have used the Jan 2010 high here


There were similar reversals across Asian indicies yesterday. Hong Kong and Australia staged the best recoveries from ideal levels. For now we are holding the morning gap but there has been little additional gains from the morning opening thus I am am short term cautious. However, any overnight panic would present a great buying opportunity as a good short term low is in place.
Thanks
Austin

Tuesday, 9 August 2011

1102

Morning All

(UPDATE 14:00 Sydney time) Australia is surging after the All Ords clipped my 61.8 retrace level. We will see a big hammer on the close. I got stopped out of my S&P futures but re-entered at 1090. I have bought the basket of long stocks in Australia as I said this am. Now we await Europe. Cmon

I wake up to see the S&P500 -6.66% (spooky hey). Last night I highlighted 1145/1150 and then 1100/1105 as the targets for this move lower. I didn't expect the latter levels to get hit so quickly but hey, this is panic. Have a look at an intraday chart of the S&P500 and you can see how sharp the moves are when these levels break. Once again, it is a day traders dream so keep trading the levels.

I could show hundreds of charts showing how broken this market is but that is not of value. I could list a thousand things that scare the hell out of me and that is unnerving this market. However, most of that is mere hindsight now and we are dealing with the now. I will keep it very simple- I am buying the market here at 1105 futures. It is Tuesday (my reversal day), we have hit the 38.2 retracement level. Everyone is scared shtless. It is thus time to put on a small low risk trade and add if we see confirmation.

These are the levels:
S&P500 1102/1105 (38.2 retrace from 2011 high to 2009 low)
ASX200 3800/3850 (61.8 retrace from 2011 high to 2009 low)
Eurostoxx 2250/55 (61.8 retrace from 2011 high to 2009 low)

These should be formidable. This is what happened in 2007 after the initial panic off the high:

SPX 2002 Low to 2007 High
And if we zoom in at this area:
And now:


No doubt this is bottom fishing. However, I am playing a simple level with the right stops into panic. I would do this time and time again. In Australia today I have pulled up a number of levels in leading stocks and will be looking for these to hold in the first 30mins. If they hold, I will also be buying a basket of stocks for a small position and adding if we seeing confirmation in the next day or so. Keep it simple. Of course it all looks horrible and there is blood on the streets thus the longer term traders need to see confirmation BEFORE getting long.

Austin

ASX200 Daily:


Monday, 8 August 2011

Are We There Yet?

Good Evening All,

Another trading day has closed in Asia, and we have just seen another pretty horrible session across the board. Tonight will probably be another difficult one in Europe/US especially with rumours circling of a run on Socgen and Unicredit. It all feels a lot like the initial panic in August 2007 when the interbank market froze and Northern Rock went belly up. Technically, the 2007 parallel scenario I showed back in June continues to play out perfectly: http://swingtradersedge.blogspot.com/2011/06/party-like-its-2007.html. If my take on the market is right and this parallel continues to play out, we are now in the final stages of a short term capitulation low. 1145/1150 and then 1105 are the key levels for any low. Of course this is a wide range, but we are dealing with extreme volatility.

As day traders, we thrive on this volatility. These are the times when you should be (and have to be) making your year. We saw a 100 point intraday swing on the SPI today as we traded around the big 4400 level. Many chances to get long and short intraday all with tight risk.

As swing traders, I restate that now is not the time to be short for the bigger swing. As we are witnessing, there will be government interventions and changes to the rules in the game that will cause violent short squeezes. These can be very painful. It really is best to keep it nimble and NOT be wedded to any one position. The real money now will no doubt be made from buying this market once we have found the short term low. Easier said than done. However, like in 07 and many other market tops, price is now reaching a climatic extreme coupled with climatic selling volume. When there is this much fear, you have to be willing to buy when it lines up.


S&P500 Daily:
Here are simple vanilla targets for this move lower. Should we see a break of Fridays lows in tonight's trading, 1145/1150 is the first major target. This is the 61.8 retrace off the 2010 lows.

S&P500 Daily 2009-Current
And if we see real panic, 1105 is the big 38.2 retrace off the 2009 low. I don't think we will see this level on this leg down, but later in this bear trend this level should prove to be an intermediate low and major turning point. Note the Jan 2008 low bottomed at the 38.2 retrace.


S&P500 2007:
This is the parallel and topping pattern I have been following. Note the panic move lower on the break of the upward sloping trendline. This move bottomed when price was clearly overextended out of the bollinger bands. The entry signal was a wide ranging bullish closing bar back into the bands. A 100point+ rally followed suit.


S&P500 Current:
In similar fashion, price is clearly overextended and treading out of the bollinger bands. I am looking for a bullish wide ranging closing candle to get long for a significant rally.


ASX200
The 61.8 retrace comes in at 3850. Today we tried to put in a low but the rally failed in the afternoon. I think any move lower into this level will set up a great buying opportunity.

Thanks
Austin

Friday, 5 August 2011

So What Happens Next?

Morning All,

Well I was wrong. You always put yourself on the line by writing a blog and last nights action certainly blew away my short term analysis. It is a shame- I had been bearish and right early in this distribution process showing the 07 top parallel, the topping patterns in Equities, the Double Top in AUD etc but I overtraded. Ultimatly, I tried to buy support last night and got caught. It seems the whole market got caught and that is how these sell offs manifest themselves. It is all about leverage and liquidity- when levels break there is forced selling, liquidation and it all spirals out of control in this electronically driven environment. If anything, this whole move shows the importance of obeying stops at all times. Really, anything can happen at this moment.

Right now we are in panic mode. Panics do not make for good shorting opportunities as the bulk of the move has played out. If you want to short down here you will have to have very wide stops which dont justify the risk/reward. Equally, stepping in front of this before confirmation is a ticket to the poor house.

This is what I am thinking. We have levels where the S&P500 can make a low at 1195 then all the way down to 1105. We are at that first level come last nights action. This correlates to 4075/4100 ASX200. We again saw a huge volume spike last night which is indicative of a capitulation low. Today is 610 Trading days out from the March low thus there is the chance of a turn for the cycles men. I also think that there is the very real possibility of government intervention or a FED announcement today or coming into the weekend to calm the market. The game is rigged and has always been rigged from the long side- that is why shorting is just so tough. I have seen this time and time again in my experience. I do think we see a strong snapback given some of these factors and this will last for a period of a week or so (think flash crash) but I am just not certain yet if it is today. We will then see one more retest of the low before a genuine bottom and intermediate low can form.

Right now, the only way I can play this is with tight risk via futures. Futures offer the ability to be wrong and get out of the market without too much pain. The time for buying a basket of stocks is not clear yet.

Here is a chart of the ASX200 target levels coming into today at 4075/4100

ASX200 Daily:
ABC target at 4100/4130

ASX200 Fib Retrace
50% retrace and prev June 2010 high at 4075

Thursday, 4 August 2011

S&P 500 Climatic Low Is In!

Morning All
I was looking for a climatic low in the S&P500 last night and we got it, although someway below my ideal levels. Unfortunately, these overshoots are what can happen in panic situations and these type of junctures. No matter. We had an extreme volume event with 1.2bln trading on the NYSE which is the highest we have seen since this market topped. Price traded down on the open and broke through the 1250 level but reversed in the first hour of trading, closing up on the day. This is a classic bear trap. Also note that many technicians are calling a "confirmed Head and Shoulders" and neckline breaks etc. All this after a 100pt move off the high! These are the worst trading patterns and indicative of a bearish extreme.

S&P 500 Daily:
A hammer right out of the previous March lows and 38.2% retracement off the 2010 low. Hammers after such a steep decline are one of my favourite trading setups for a short term long swing.



S&P500 Daily ii
Note the clear overthrow of the Bollinger band and the close back inside. This is a buy signal and indicative of a panic extreme.


S&P500 Daily iii
This is the H+S pattern every blog has been showing of late. This is a classic bear trap as the pattern triggered last night only for price to rip back into the bears faces.

Thus in the short term I do believe we have seen a tradeable low. Price could retest last nights low one more time before the genuine bottom but that is not my primary view. I am looking at a target of at least 1280+ in the next couple of days.

Thanks
Austin

Wednesday, 3 August 2011

Trading an S&P500 Low

(UPDATE) Looks like there has been some government intervention in EUR and S&P has just moved 7pts in a straight line from when I wrote this post. I got long and will be adding come cash open.

As per my morning post, I am now looking for a short term trading low in the S&P 500. We have seen a good move lower and as a short term trader, I am now looking to profit from the panic and hysteria at these levels. The best times to short are when everyone wants it and the best times to buy are when no one wants it. This is a short term trade only and needs real discipline and tight risk. Hopefully the charts below demonstrate my thinking at this juncture.

Firstly, we are seeing bullish divergences on the 5min chart with a clear 3 step push lower. These ending wedges and 3 push moves are ending patterns and great setups for a turn.

S&P500 5min Cash:



Secondly, price is coming into clear support/low end of the range on the Daily. As shown, 1245/1250 is the area of the previous March low and also an area where A=C off the high

S&P 500 Continuous Futures Daily:


Finally, there is also a clear fib relationship between the 2 major waves lower off the July high. Wave (iii) or C is 1.618(i) at 1246.

S&P Futures 15mins:


Thus there is a clear buy zone at 1246 to 1250 in the S&P futures. I would be buying a small position when the cash market opens and then adding with confirmation i.e. hammers/break of the ending wedge/whatever confirmation from price you use. This is a great risk/reward trade with stops below 1240 and the target at least 1265/70.


As a final backdrop, AUDUSD has now played out my Double top pattern and I would be covering shorts. Once again, you have to develop a low risk idea at all times and characterise the market for the best possible trade. Here we are trading back into good supports and the upward trendline.

AUDUSD Daily:

Morning Thoughts

Morning All

US indices had another wide ranging down day overnight and the market continues to confirm the analysis presented here. It is all getting very real. I have a lot to get through before the open so I will keep this post brief with more to come this afternoon.

We have seen 2 wide range days down in the S&P 500 from recent high and I anticipate a short term trading bottom/capitulation low tonight. Markets often turn after a 3 day move from high to low. Key areas to watch are 1245/1250 and 1240 futures where there is a confluence of support and relationships. I am sure there are many technicians now who are now calling for a confirmed H+S top and iii of 3 down etc which makes this ripe for a capitulation low. From here, I am looking for a short term bounce back up to 1280s and this is another great area to add to shorts. This is short term trading only, the bigger picture is not good.

I have been stressing many bearish patterns and distribution profiles across markets. S&P distribution, Nasdaq Megaphone/Triple Top, Shanghai breakdown, ASX200 triangle breakdown, Copper bearish reversal candle, AUD double top etc etc. This continues to play out and it has become increasingly likely that a major high is in (short term bounce aside). I thought the market was following the 07 profile and unfortunately I put this aside 2 days before the high. The similarities look eerie to me.

S&P500 Daily 07
Note that a genuine turn out of the low only began with 2 strong hammers and after real panic. Look for this before getting long for a longer swing.


S&P500 Daily Current



ASX200 Daily:
ASX200  we have been in a volatile range from 4450 to 4650 over the last month or so and this will be broken today. We have minor supports at 4315 first thing today but I think we are more likely to see a thrust down to 4200/4250 in the coming days. No need to step in front of this yet given the breakdown of the recent range.

Tuesday, 2 August 2011

It Wasnt The Bears Who Got Trapped

Morning All

O no. US lawmakers did what was widely expected and the market followed script.....for less than a day! I must have read about a "relief rally" a thousand times over the weekend. And what we got instead was a good old slap in the face. Last nights action was nothing but bearish with the gap up completely filled. I highlighted a good turning point area on Friday at 1285 but the inability of the market to hold onto any kind of gain is indicative of a market in distribution. The heavy hitters used the bounce to sell stock. NYSE advancers were as high as 1600 on the open and closed at 646! The price action itself speaks volumes. This could be a really horrible week indeed and I have growing conviction that we are on the cusp of a major move lower. Are we looking at a potential breakdown into the end of August which will force Ben's hand come the Jackson hole meet? Don't rule it out. Now that this debt ceiling charade is off the agenda, the market is turning its attention to the economy. "It's the economy, stupid".

S&P500 Intraday
The importance of waiting for the cash open! I stressed this in my comments field last night and last nights action clearly illustrates paying heed to actual trading vs the futures driven after hours robotic ramp ups. A market that gaps up 20pts and tops in the first 5minutes is not indicative of a healthy market. 1305 has now become major res and a line in the sand for me.




Also note that NYSE new 52 week lows surged. Interesting that this has spiked beyond the June readings despite the fact that price has not breached this low yet. This is yet another sign of distribution.

NYSE 52 week lows:



S&P500 Daily:
I have seen many Elliott counts depicting a Wave 4 triangle. The fact that the biggest bear blog out there (and worst trading blog) has been showing this bullish count makes the cynic in me disregard this wave 4 idea. The thing with Elliott is that you really can create any count all within reason. Here I have shown a valid count that shows this market has topped and on the verge of a strong sell off. Breadth supports and this is all in line with the other Daily distribution patterns I have been showing here. Also note that the market is retesting the 200SMA. This is not healthy. The first bounce worked well but the market should not be retesting this moving average so soon. Read High Chart Patterns blog for more information regarding this.


Copper Daily:
Copper put in a bearish reversal candle right at the top end for the range. I would expect some follow through to the downside at a minimum.



So where does this bring us in Australia? We had a false breakdown on Friday that was followed by a bullish wide ranging day on Monday. Futures are indicated at 4390 on the open thus ALL OF YESTERDAYS GAINS HAVE BEEN REVERSED OVERNIGHT. Not good action and this is all in line with the triangle pattern I have been showing. Expect a thrust lower in the coming days and I am looking for 4200 (minor support at 4325).

ASX200 Daily:


Today I will be watching the 4378/4380 level on the SPI futures and will be shorting if this level drops. Look for intraday resistance at 4415 and 4425.

In sum, the S&P500 remains in a period of distribution within a range. It is increasingly likely to me that we are on the cusp of a breakdown and the high is in. The technical picture across Asia is a mixed bag with Australia being the major underperformer. 2600 is of major importance for the Shanghai Composite and if this level goes in the coming days, I think the whole region will be dragged meaningfully lower. I cant stress enbough the need for preserving all capital and keeping it really nimble here.

(UPDATE 11am Sydney time) The ASX has held the 61.8 retrace from Mondays high to recent low all morning. Price has failed to breakdown thus far and taken out my intraday res levels. If this is going to reverse lower, it needs to do so now as Asia comes in at the 4435 level. For now, bullish action).
Good luck
Austin