The Moment Of Truth

Morning All,

The next 2 sessions really will define whether we are on the cusp of an intermediate rally or whether this market really is in trouble and destined to break lower. To me, it really is that simple. The market is waiting upon a vote out of Germany and no one knows what will happen. The market was certainly fearful last night but breadth readings did not hit any new bearish extremes. For me, I believe that the DAX market has bottomed based on the technical work I have been showing here. I also think there is a good chance we have seen double bottom pattern in US markets. If this scenario is to play out, the market must now hold in around here. Time to get your Fib retracements out and identify your low risk buy spots with tight stops.

I have been toying with the idea of an intermediate corrective rally as we saw in 07/08. I was somewhat early last week. However, as I keep saying, this kind of move should be choppy, whippy, and shake out both bulls and bears alike. This is what corrective rallies do. Yesterday I was studying this intermediate rally in 07/08 and this is shown in the chart below. How frustrating was that move? Ultimately, the market rallied 15% from low to high in 45 trading days right into the 200 Day moving average. It was only after this move that the market really sold off leading to the collapse in 08/09. This is how markets work. The initial move out of the high is never the best shorting opportunity.

S&P500 March 2008 Intermediate Rally
I have labelled a number of red arrows here to highlight the sharp moves lower within the overall higher intermediate trend. I think we may be looking at a similar scenario given the macro, given the concerns out there and the economic slowdown. This is obv dependant on the S&P holding its most recent lows.

S&P500 Current
I saved this chart yesterday before last nights sell off. I wish I had posted it yesterday! If we have seen a genuine double bottom, the market will hold in tonight. I envision the overall move being choppy and whippy for the unsuspecting.

In the short term, there are a number of good trading setups appearing.

Emini Dec Futures 15mins:
The Eminis built a great base pattern under 1140/1145 and we are now retesting this previous breakout level. This is a low risk long entry with stops below 1135. A great trading pattern (I just got long). If this cant hold then this is a genuine move lower back down to 1100 and lower.

Australian Dec Futures 15mins:
In Australia we are also looking at a great trading setup. The market has now pulled back to a previous breakout zone at 3980/4000. If this is a genuine base pattern (which I think it is), then last nights pullback offers a great low risk entry.

So in sum, we have seen some pullbacks to some great trading levels. If this market is going to hold in, it will do so here. The catalyst is coming tonight and thus obviously these patterns will be either quickly validated or blown away. So whats the trade? Buy it first (or wait for confirmation) and if markets do not hold, its time to flip and join this move lower. I don't know which scenario will play out but as a trader you have to be flexible. I do think there is a strong possibility of a bigger picture intermediate rally thus I am looking for buy setups.

Thanks
Austin'

Double Bottom Patterns

Good Afternoon,

In my last post I talked about the possibility of a Double bottom pattern playing out in the S&P500 and the DAX lows holding in. This occured yesterday with rumours circling of a Eurozone bailout deal in the pipeline. We will find out more in the upcoming days if these claims are substantiated. In the meanwhile, there are a number of bullish patterns forming across markets for the brave. The initial trade buying at the low end of the range has played out. It is too early to say whether a genuine low is in from the Daily charts but there are some good low risk/high reward trades.

S&P500 Daily:
Test of the previous lows and a strong reversal on Monday. Note that a higher low has formed whilst the DOW and Russell made new lows. This could be deemed a bullish divergence. The key 1140 level was recaptured last night. Very whippy and volatile but great opportunities for traders.

Dow Jones Industrials Daily:

Test of the lows and held. This is how new trends begin.

Russell 2000 Daily:

DAX 15mins:

A perfect double bottom trade off 5000. This is the heart of the crisis and if this market breaks out from here, this should really buoy markets.

Crude Daily:

Another double bottom pattern in Crude. Note the strong reversal candles off the previous lows.

In sum, there are a number of encouraging signs emerging after last weeks sell off. Price has held and reversed from the low end of the range. Also note that Copper has traded right into the 38.2 Fib retrace from 2011 highs to 2009 lows and held in. The ASX200 is putting in a strong day today, reversing all of yesterdays losses. A possible truncated low could be forming here but once again it is early days.

It all comes down to your timeframe. Traders who use the Daily charts should see these as encouraging signs and looking for follow through to confirm a more meaningful tradeable low. Shorter term traders would be looking to get out of longs as we are now back in the mid range.

Sentiment remains very bearish. Governments are thrashing out deals to stem the panic. I have no idea whether or not any deal will be passed- and that is why I use the technicals to guide me. I have consistently stressed that I don't think this is the area to be short for longer term swing traders. Sure I missed the sell off from the recent highs but I continue to believe that the best traders are willing to buy when no one wants it and willing to sell when everyone wants it.

Austin

p.s. This is the Emini Dec 5min chart I am looking at tonight. As long as price holds above this 1140/1150 area, I am looking to rebuy this market with the correct stops.

Thoughts

Well I was wrong. I really thought the market would hold in but this move lower has been stronger and deeper than anticipated. No doubt this is a new wave lower whether it is somekind of 5th wave or a bigger kick off move down. My line in the sand was 1140 and this was broken last night with relative ease on good volume. I guess overconfidence and my recent good run impacted my judgement. That's what stops are for.

The market will do 1 of two things here. Either the S&P500 will test the 1100 lows and hold in setting up a double bottom trade, or we break clean through that will lead to a strong drive down to 1040/1015. Obviously I don't know which setup will prevail in the coming days. I do know that panic situations like this always lead to very good opportunities for those who are planned. I also know that the market looked and felt just like this in 2008 and a double bottom was made in March 2008 leading to a very substantial rally. Fear now, just as it was then, has reached a fever pitch. Is it different this time? The parallel scenario I have been following is shown below.

I also believe that the DAX has put in a very good climatic bottoming pattern and thus should hold its recent lows. This is the heart of the crisis. Any continued rally should bouy global markets. We will soon find out.

S&P 500 Parallel Daily:


There are a number of mixed signals in Asia. The ASX200 is testing its August climatic lows but no new lows have been made yet whilst the Hang Seng has plummeted through support. Copper continues to breakdown and the A=C possibility is completely off the table. Its Friday and I doubt there are many willing buyers into the weekend with this market. The  S&P500 looks like it is overdone in the very short term and I would not be surprised to see it hold tonight with a small bit of short covering.

One final point. In these panic situations, Governments will do all they can to stem the bleeding. Sure it doesn't seem that anything is working currently. However, they will continue to drive a tank into this to try and rectify the situation. This leads to very squuezy markets so make sure you are in positions you can get out of.

Thanks
Austin

Was That It?

A quick update here. The S&P got thumped last night post Ben's announcement and certainly the sell off looks strong with decent breath. Ulitmalty the market sold off at the top end of the range and I missed it. There was a potential warning sign with the S&P short term 1220 Double Top pattern and the Nasdaq bearish reversal out of the 200SMA on the Daily. A trading friend of mine at, http://marketletters.blogspot.com/ highlighted the underlying breadth weaknesses coming into that 1200 level and this has played out. I reduced the book somewhat into the announcement. However, where does this leave us now?

I called for an Intermeadiate corrective choppy rally up to 1250. These kind of moves, just like in 08, are overlapping and choppy and never move in a straight line. I still think this could possibly play out as long as the market can hold the 1160 level on a cash basis. The ultimate line in the sand is obviously the 1140 pivot and bears should look for breaks of this for confirmation of a new leg lower.

There are a few charts that give me small encouragement. Firstly, the DAX has been the leader since putting in its climatic bottoming pattern. The rally off the low looks impulsive to me and this could possibly be a natural retracement into good supports. I am looking for this level to hold.

DAX Futures 15mins:

The S&P 500 has now traded right into the 61.8 retracement off the last swing low. Certainly the extent of the sell off is very sharp but that is the way the market works these days with the increasing use of algos, electronic trading and stops etc.

S&P 15mins:

S&P500 Daily:
Back into the low end of the range and potential support. 1140 is the line in the sand.

Someone also asked about Copper on the comments field the otehr day. Interestingly, this has now traded right into an A=C support zone. If we see a bullish reversal candle here, that would confirm the pattern.

Copper Daily:

In sum, the markets are testing a number of key zones here. There is a lot of panic and these can be good buying opportunities. If this is a intermediate rally, the market must hold in pretty soon. There are a confluence of levels I am looking at namely AUD 1.00, EUR 1.35, S&P1160 (1155 dec futs), SPI 3965/3980. I will be looking to buy these levels today with tight stops.

It Is Asias Turn to Turn

Morning All

It has been a while since my last post. I guess I wanted the full impact of what I was trying to highlight filter through. Since then, we have seen a 7% rally in the S&P and a 10% rally in the DAX (the heart of the crisis): http://swingtradersedge.blogspot.com/2011/09/intermeadiate-low-is-in.html. However, Asia has not followed the script and has languished. It seems clear to me that Asia is waiting upon a major catalyst from overseas whether it is the Europeans sorting out their mess or Ben piling more dollars into the markets. Whatever it is, Asia is poised for a very strong rally I believe and we just have to be patient. I also continue to believe that the S&P and the DAX have higher to run. There is still a lot of bearishness around and yet the markets are clearly catching a bid despite the negative headlines. I am still yet to see a technician calling this market higher- the overwhelming consensus is that this is a bear flag/4th wave. Perhaps I am missing something, but my experiences tell me that the market has a habit of doing what everyone least expects. Bears will not be able to hold on for too much longer.

A quick run through of key Asian markets:

Hang Seng Daily:
This looks to be a great double bottom pattern to me. Clearly there has been a lot of volatility around this level and offers a clear low risk entry for the bulls. There is a good bullish divergence in the momentum indicators vs the underlying price action. Momentum precedes price.

Hang Seng Daily ii
Note that the market has hit a key pivot level. Once again, a great low risk long entry with the correct stops.

Nikkei Daily:
Price has traded right into support and the low end of the range. We have seen a breakout from a ending diagonal pattern with bullish divergences. The Japanese government is actively buying stock indicies/efts. Want to be short here? Don't be.

Australia Daily:
We have seen a strong thrust off the lows and a overlapping corrective pattern right into the 61.8 fib retracement at 4000. This is a great level for a higher low to form. A number of underlying stocks are at great support levels. Bottom line, I am looking for a breakout in the coming days targeting 4500.

Nifty Daily:
A perfect A=C on the low. A perfect failed breakdown. A great base pattern forming under res. Looking for breakout.

DAX Daily:
This pattern played out perfectly. Bigger picture, this still has higher to go up to the levels cited.

In sum, the market is awaiting what Ben can pull out of a hat. There is so much bearishness around that any big shift in policy will cause a monumental squeeze. The underlying price patterns and tape are indicating that there is genuine potential for a breakout. I will be reducing the book into the announcement but I have a bullish expectation of the outcome.

Thanks

Austin

Intermediate Low Is In

Good Afternoon All

(UPDATE) Asia is selling off and this is now completing all the Asian setups I showed here: http://swingtradersedge.blogspot.com/2011/09/getting-ready-for-swing-low.html. Everything is now coming together, just need that squueze event.

I thought I would put myself on the line today and call an intermediate low in place for US markets. Yesterday I put out a post looking for the bigger picture swing low and I think there is enough evidence out there to now confirm this. We did not get a clean double bottom pattern and certainly the rally off the low doesn't look impulsive. However, the S&P 500 has successfully defended the 1130/1140 zone on several occasions and held every time. The DAX has hit my 61.8 fib retrace and put in a small reversal candle. The Australian futures hit the key 4000 level and have rallied 80pts. The EUR hit my 1.35 level and rallied some 150pips. And most importantly, every single technician I read is bearish and I know that these are the kind of moments when one has to stand out.

The market continues to hold the 1130/1140 area despite the panic and fear in European markets. When a market continues to hold like this, it is sending a loud signal of underlying strength. One more strong session will lead to a breakout.

S&P500 15mins:

S&P 500 Daily Current:
A number of hammers have now formed at the low end of the range. This is the Daily confirmation I was waiting for.

No doubt the S&P500 looks like a 3 wave move off the low. However, there have been many occasions in the past where the S&P has staged a strong breakout despite this. Look at the examples below. Every Elliottician will be labelling the current setup as a iii of (iii) of 5. I am yet to see anyone successfully predict/anticipate a iii of (iii) and they are in fact one of the most fadeable patterns out there. Dont be that bear looking for the end of the world- they are black swans.

S&P500 2010
Note the initial rally off the July low was a clear 3 wave push. The market tried to retest but put in a higher low. This led to a significant breakout and rally. Interestingly, this breakout occurred as the market began to price in QE2. Same again with QE3 around the corner?

S&P500 2006:
A similar 3 wave push and retest was the initial pattern before this strong breakout

S&P500 2005:
In 2005 the S&P formed a very similar pennant/flag type pattern to the current setup. There was a higher low that formed that led to a significant breakout.

And finally to the heart of the crisis- the DAX. This is now forming a classic ending wedge pattern right at the 61.8 fib retrace level off the 2009 lows. I dont know what will trigger the breakout, but I do knnow there are a lot of shorts out there and Central banks doing everything they can to fix things.

DAX Daily:

In sum, I think the markets are on the cusp of a major breakout. Obviously there is some work to do before this can be fully confirmed but I am happy to get some risk on board first and then see how it plays out.

Thanks

Austin

Getting Ready For The Swing Low

Good Afternoon All,

This market continues to follow the technicals with precision. This blog has successfully identified a number of turning points in the market over the last few months and Friday nights sell off was no exception. I believe this is the final leg lower into a bigger picture intermediate low. I do not know if the market will bottom today, Tuesday or next week, but certainly I am getting ready for a strong turning point. You have to be prepared and you have to anticipate to successfully make money in the market. Certainly everything looks and feels very scary right now, and that is exactly how it should feel at such a juncture. Remember, you have to be willing to buy it when no one wants it just as you have to be willing to sell it when everyone wants it.

S&P 500 Daily:
The market sold off right at the top end of the range identified. I am now looking for a test and double bottom trade in the low 1100s. Markets very rarely begin a new trend without a "test" of the previous low. The wise trade is to wait for confirmation such as a bullish candle out of this zone before taking the bigger picture long swing.

(Update) I am increasingly thinking that we may not even get the luxury of a clean retest of 1100. Given where the DAX is trading, I believe we may even see a higher low form tonight at 1120/1130. Once again, wait for confirmation.

S&P 500 07 parallel
This is the updated 07 S&P500 parallel. The S&P500 in 2007 is shown by the white line. In 07 we saw a panic retest of the lows that led to an intermeadiate bottom and I think this is where we are at right now.

ASX200 Daily:
I believe this market put in a climatic bottom in early August. Australia has been one of the strongest markets globally of late. This current sell off should form a higher low in the coming days leading to another strong move higher.

ASX200 60mins:
3950 to 4000 is my key support zone. This marks the round no support, the 61.8 retrace, and also an area where A=C off the high.

Hang Seng Daily:
Hong Kong is setting up a nice double bottom trade right at the support shelf. There is also a possible complete 5 wave move down coming into play here.

Japan Daily:
Another double bottom trade lining up here. Interestingly, some months ago I wrote an article about this market following a parallel with the S&P500 post the flash crash and forecast that this market would retest its lows: http://swingtradersedge.blogspot.com/2011/03/nikkei-vs-s-flash-crash.html. This has now played out. Note the 1-2-3 pattern into the current low which is a bullish ending pattern.


Shanghai Composite Daily:
We have seen a breakdown out of the consolidation pattern I showed a few days ago. Now looking for a test of the support shelf as the final move lower.

In sum, there are a number of markets now coming into their respective support zones. This couples with the DAX coming into its 61.8 Daily retrace at the 5100 level. The key for many of these setups will be waiting for a Daily closing confirmation candle as we are still a bit early. Tuesdays are my turning day and I think we will see a bit more panic before these setups play out. I cant rule out a low tonight however. Also note that it is a full moon this Tuesday which often produce turning points :)

Obviously there is a lot of fear out there with concerns that a European nation may go under and CDS prices across the region are blowing out. Thus caution is warranted for those who do not know what they are doing. However, I do know that the best money is to be made at market turns so be prepared via these charts.

Thanks
Austin

p.s. Ollie was asking about the USD. I think the EUR is coming into an interesting short term support area also at 1.3450/1.35. I am not calling a low here but this if this market is going to hold in, it is here.

EURUSD Daily:
A=C off the low and a key pivot point comes in here

The Last Sell Zone

Good Afternoon

Yesterday I said that I thought there would be one more rally before a final push to new lows. We got the rally indeed but certainly the move seems a lot stronger than I had anticipated. Volume was low and my options desk informs me that much of the move into the close was exaggerated due to large short gamma positions coming into expiry. More importantly, if this market is going to sell once more, it has to happen now. Otherwise, I feel a longer term low is in. I am seeing an interesting reversal in Asian markets today out of clear resistance levels. Asia has often led the markets globally so lets see if it proves to be a lead indicator once again.

The main point I stressed yesterday was that this is not the time for longer term swing short positions. There is no need to finesse the market here for longer term traders. This point remains.

SPI Day Session 15mins:
Despite a strong 2% overnight lead, our market opened up 1% and then sold off immediately. This was right out of the 61.8 fib level and the open gap. Once again, the power of these fib levels was shown today. This will probably leave a bearish reversal candle today on the daily.

AUDUSD 15mins:
Rally right into the previous breakdown level and the 61.8. The reversal was enhanced by a weak jobs number.

Copper 15mins:
Same thing. Price has rallied right into the 61.8 and sold off. ABC off the low?

S&P500 15mins:
Coming into tonight, the cash market is right into the 61.8 and the previous breakdown level. Will this market play out like what we are seeing in Asia? Short first and ask questions later.

In sum, we are at a critical juncture for the bears. The market needs to sell here otherwise I believe the intermediate low is in. I am short the Eminis at 1196.50, with stops above 1205. I see this as a low risk trade and will add if I see more confirmation.

Austin

Where To Now?

There has been quite a sell off since my last post: http://swingtradersedge.blogspot.com/2011/09/bearish-turn-confirmed.html. The patterns and scenarios that I talked about have played out to a tee. The market is now at a very interesting juncture indeed. I believe we will see a short term rally and one final retest of the lows. This retest should present a great buying opportunity for a potential intermediate rally. No doubt there are a lot of negative headlines and bearish catalysts out there. However, as per my previous bigger picture posts, the time to put on the big short swing trades are not at this current market juncture. I would not be surprised if the market caught a genuine bid from the technical levels I am about to cite in anticipation of QE3/Operation twist. The FED will do everything in its powers to stem this economic decline. As i keep saying, governments changes the rules and do everything they can after the initial panic.

My 2007 parallel scenario continues to provide a very accurate road map.

S&P Daily 2007- the move from the high
As you can see, the market had one more retest of the lows before a genuine bottom could be formed and a 2/3 month counter trend rally ensued. I have marked on this chart where I think we are at.

S&P 500 Daily Current
We have seen a clear topping pattern for a Wave 4 top. Any bounce up to 1170/1180 over the ensuing days is a great shorting opportunity for a move back down to the lows. Markets often need to "test" their lows before a new trend can begin.

The underlying breadth certainly seems to support this outlook. Volume has been less on this decline since the Wave 4 top and the highest number of declining issues etc was during the Wave 3 down.

In Asia, the SPI futures were 10pts short of my first target at 4055. The ending diagonal and failed breakout was a great bearish pattern. I think there may be one more move down to come into the green boxes cited (the 61.8). I do not think we will trade as far down as the lows. Be ready to buy the stocks you like for the big long swing.

SPI Futures Day Session 60mins:

The heart of the current crisis lies in Europe. The DAX is no doubt the bell weather of the region and this market is now approaching a key support level. Just as the SPX bottomed at the 38.2 retrace and the ASX200 at the 61.8, the DAX is now approaching the 61.8 right when fear and panic are at a fever pitch. This is one of those moments when you have to be prepared to get long and do the uncomfortable thing.

DAX Weekly:
The 61.8 retrace and key pivot line.

DAX Daily:
The 61.8 comes in at 5120. There is also a clear 3 wave push pattern into this level- an ending pattern.

In sum, the markets seemed to catch a bid last night after the US hols. I think this bounce will present one last good shorting opportunity for the nimble. Look for the bigger picture long swing trades at the DAX 5100/5125 level, ASX 4050/4000, S&P500 1102/1090. These should be formidable supports in coming days.

Thanks

Austin

Bearish Turn Confirmed

Morning All

Yesterday we saw a strong reversal in the Australian market that saw us give up a 1.4% early gain to close flat. The market traded right into the open gap on the Daily and failed, forming a good bearish reversal candle. Once again I find it very interesting that Australia continues to be a lead indicator for global equities. Europe and the S&P500 went on to register losses despite a strong ISM print. US markets opened on their highs and closed on their lows. Breadth was bearish with 1616 decliners to 222 advancers and a strong bearish reversal candle was left out of resistance. What more do u need? Obviously tonight's non-farms number will be the focus tonight but the price action is telling me we have lower to go.

SPI futures Daily (Australia day session only):
Price reversed right out of the open gap area yesterday and left a bearish reversal candle. Short term traders should now be using yesterdays highs as a stop to get short.


SPI futures 60mins:
We failed yesterday right at the double top area in what looks to be a classic failed breakout. Note the 3 push ending wedge pattern. This will be triggered today and I am looking for a target right back down to 4050/4100.

Shanghai Composite
I have been watching the setup for a while. China has failed to rally despite strong overnight leads for the past 2 weeks. This market has formed a clear triangle pattern and this should be triggered today on the open. Look for weakness down to the previous lows.

AUDUSD Daily:
The AUD rally off the low also looks to be nearly done to me. This looks like a clear ABC move off the low and price is now forming a Ending wedge pattern right at previous resistance/breakdown level.

AUDUSD Daily:
This is the Daily count and pattern. Price has moved right into the previous breakdown candle and this should be formidable resistance.

In sum, it appears clear to me that we are on the cusp of a big pullback. Whether this leads to a retest of the lows I do not know yet. However, as a short term trader I short first and ask questions later. Remember that the first day of the month is often a very good precursor for the rest of the months trading. Day 1 was a strong rejection out of good resistance. We could be set for some serious weakness once more.

Thanks
Austin

p.s. Shout out to Ollie on yesterdays comments. Some really good charts and analysis there so pls read. Keep them coming

Turning Bearish

Morning All,

The end of month ramp job has done what it was supposed to do and we have seen a strong run up across markets into this date. I now think there are some interesting shorting opportunities with a great risk/reward. In my last post I commented that the market was feeling tired. I now feel that enough evidence is there to suggest good shorting opportunities.

First things first, we have a classic A=C move off the low in the SPX at 1229. The market gapped up on the open, made its high in the first hour and then grinded lower throughout the day. I think this is now a great low risk short entry for shorter term traders with stops above 1229. The first day of the month has a habit of setting the tone for the rest of the month. For instance, the S&P high was on the 2nd May (the first trading day of the month) leading to a 70 point fall; August 1st marked the raising of the debt ceiling which saw a sharp reversal lower leading to a further 150 point fall. These relationships have been going on for the past 2 years and it is not just a coincidence.

S&P 60mins:
Clear A=C off the low and reversal right at the top end of the trend channel. I am short now and a move below 1200 would confirm the setup.


S&P 15mins:
The recent action looks like a clear ending wedge to me right at the top end of the range

I continue to highlight the S&P 500 parallel with the initial move out of the 2007 market high. Once again, I find the current juncture and wave structure very interesting here. In 2007, we saw one final move lower to complete a Wave 5/double bottom before the intermediate rally began. I think we could also be looking at a possible turning point here for one more retest of the low before a stronger rally can begin. If the market doesn't sell here, than this parallel is gone.

S&P 2007 Move from the high

S&P 500 2011 current move from high


Bottom line, the US markets are at a interesting juncture. I think a tradeable high may be in. Breadth has certainly deteriorated and there is a lack of volume showing no interest to buy stock at these levels. I also find it interesting that lead risk assets such as the AUD did not rally last night despite the equity mark up.