The Market Took That Well

Morning All

Continued promises but no new information. I really thought markets would get hit hard last night given the complete ineptitude of European leaders to come to anykind of resolution. Initially we did see a sharp fall in EUR/DAX/SP500 but this was relatively short lived as markets recovered. That kind of price action makes me feel that we could push a bit higher to make a squeaker new high around 1255/1260. Those 200day moving averages in the DOW and S&P500 look like a great target if the high isnt already in. Also note the Nasdaq is testing its previous highs and this is a clear short level with tight stops.

DOW Daily:

S&P 500 Daily:
If the high isn't already in at the 61.8, look for a possible tag of the 200day moving average.

The one key market that has steered me well throughout this crisis has been the DAX. The 3 push Ending Diagonal proved to be the low. Now this market is stalling at resistance BUT there is a potential inverse Head and Shoulders breakout pattern should this resistance break. Short first and join it if you get the signal.

DAX Base pattern:
KEY CHART. This is such a good base pattern under 6100. I think it needs a lot more "time" before the breakout does occur. Note the potential wedge and 2 indecision candles right at resistance. thus in the short term I think this sells but the bigger picture is bullish when/if this breaks.

Here in Asia we have a real mixed bag. The way Australia recovered yesterday due to the CPI figure was very encouraging indeed. Our market is now pricing in a interest rate cut and more to come. We will like this. Australia has vastly underperformed US markets but is this our time in the sun? Its tough to be bullish the region when US markets look to be topping. Thus I am not too sure currently and no new highs have been made. However, the 200day moving average does come in a lot higher from here and China/India are both looking encouraging indeed.

Short Term High Is In

Morning All,

I love Fibonacci. Last night the S&P500 futures topped out perfectly at 1254, right on the 61.8 fib retracement from the May high to the recent lows. Remember the panic low that occurred at 1102 on the 38.2 Fibonacci retracement? It was posted here ahead of time. I really hope that the charts shown here illustrate how powerful this stuff really is.

I believe there is enough evidence out there to call a short term high in place. I have been calling for a intermediate rally for some time now and this has been a great call: http://swingtradersedge.blogspot.com/2011/10/double-bottom-take-2.html AND http://swingtradersedge.blogspot.com/2011/09/intermeadiate-low-is-in.html

However, we have got to my targets in the S&P500 and DAX very quickly indeed, much faster than I had anticipated. Thus, I don't think this market has had enough "time" to call the bigger top in place but from a trading perspective, price is now ripe for the first major pullback since the October low was formed.

Firstly, the S&P500 has put in a bearish reversal candle right out of resistance and the 61.8. This is ideal confirmation for a Daily high. I think the pulback will be choppy and am looking for a move down to 1150-1175 in the coming weeks. Great risk/reward Short.

SPX Daily:

It was interesting that yesterdays trading in Australia was the precursor to the global sell off. Despite a 1.5% positive overnight lead, our market gapped up and made its high in the first minute, and then sold off for the rest of the day closing -0.6%. Once again, Australia was a lead market for global equities.


I see a number of complete 5 wave advances across Equity markets. The rally is done or has a squeaker new high to be made.

ASX200:

Hang Seng:

DAX:

S&P500:


In all these markets, there are strong bearish momentum divergences and waning breadth indicating a tiring trend.

I also found it very interesting that the DOW topped out last night right at the 200day moving average (not shown). This is exactly what occurred in 2008. The market continues to follow my parallel and pls see below. However, this rally has been a lot sharper and quicker, and I do think we need more time before the bigger picture high is in. The S&P500 200ma is still up at 1270 area and I think this will be hit later down the road (mid to late December).

S&P500 Parallel:


I should also note that the bearish sentiment extremes have been unwound. This recovery phase has resulted in key sentiment indicators such as the VIX and CBOE put/call ratio to move well away from bearish extremes. I am sure this also coincides with a huge unwind of record short positions. What is the path of least resistance now?

In sum, the rally off the October lows is in its late stages. There is enough Daily evidence to suggest a meaningful high for the next few weeks. The easiest part of this rebound is over. This is a traders market and use bounces over the next few days to position short vs stops above 1260. I think this is a monumental buy the rumour, sell the fact

Thanks
Austin

Do Currencies Have The Answer?

This week promises to be yet another big one for the markets. There are a whole host of companies reporting and we MAY even get something that doesn't resemble a rumour from European leaders although I suspect that is probably unlikely :). I thought I would take a break from my usual charts and show a number of Currency setups that look very interesting here from a short term perspective. FX is the biggest trading market in the world and no doubt this market proves to be a lead indicator for Equities, Bonds etc etc.

The Euro region is the heart of the crisis. EUR has had a strong run for the pat 2 weeks which seems to have buoyed all risk assets. Interestingly, I am now seeing a potential climatic Ending Diagonal pattern forming. These are great trading patterns that can be used with tight risk for turns in the market.

EUR 60mins:
Note the 3 wave push into overhead resistance with clear bearish divergences. This is a great area to be looking for a bearish turn. Use your own confirmation setups before putting this trade on.


EUR 15mins:
The Ending Diagonal/3 little Indians pattern can be seen more clearly here. This pattern was made notorious by Market Wizard, Linda Bradford Raschke.

AUDUSD Daily:
AUDUSD is also coming right into a confluence of res from 1.035 to 1.045. There is a downward sloping trendline, the 200 day moving average, and also a previous breakdown level. Also note the Fibs in the next chart. The bigger picture looks to be bullish no doubt but here we can expect a short term turn.

AUDUSD Daily ii:
This chart shows the Fibonacci Fan and the Fibonacci retracement- both also coming into the zone.

DXY Daily:
The USD is now retesting its prior breakout level and base pattern. Note the trend is up on the Daily and coming into the 55ema as well. This is a low risk short term buy trade with stops back into the base. Note this could be an ABC move off the low in the bigger picture. However, you just have to buy support here with this kind of setup.


These are all short term trades only. I see Equities right at the top end of their range namely 1225/1230 S&P500, 6000 DAX, 4250/4300 ASX200 etc. I have no desire to chase longs up here for now and instead will be looking to short early in the week with the right stops and confirmation out of these levels. Arnt we supposed to buy low and sell high?

One final thing. The Australian futures (SPI) have broken out of a clear consolidation pattern today but feels very lacklustre indeed. Could we be looking at a complete 5 wave move off the low now? Note the deep wave 2, the alt with 4, the bearish divergences coming into this breakout, and Wave 1=5 right at the 4300 level. Certainly I am getting nervous up here. Tuesdays are my reversal day and I will be looking for a high.

SPI Day Session 15mins:

Thanks
Austin

Asia Update

I thought I would quickly run through some Asian Daily charts of interest. I think there are many interesting intermediate bottom pattens in place. This should hold us in great stead for the run into Christmas. This fits in with my views of both US and European markets. Sure we are kicking the can down the road, but this is why I choose to trade and not be a fund manager!

Australia Daily:
We have seen a higher low form and a clean breakout from a flag type pattern. The candles thrusts out of this pattern are indicative of a major turning point and strong underlying momentum. Short term we have hit the first target at the 38.2 retrace and some stocks such as FMG, RIO and CBA are overextended. Bigger picture, the target is still right back up to 4500. Remember time is always important in forecasting a market move and we are but in the early stages of a new trend. Look for pullbacks next week.

Australia Daily 2010:

I find this chart interesting. After the panic move out of the high in 2010, we also saw a higher low and candle thrust pattern. This led to a strong rally for a few months into the 61.8 and beyond (although there were good pullbacks along the way).

Shanghai Weekly:
We have seen a strong reversal right out for the 61.8 fib level and previous swing low. The power of Fibonacci.

Shanghai Daily:
This chart shows a clear bullish candle reversal pattern (engulfing) with good bullish divergences in place. If we can break above this trendline, I think this will lead to a sustained rally in coming days. Don't fight a central government that is buying its own stocks.

Japan Daily:
This trade has worked out very well thus far. An ending wedge into support with bullish divergences in place. Still think this trade has a lot more legs to it.

Hang Seng Daily:
I got the initial support level very wrong in this one. However, when support drops, get short and look for the next level. This market put in a climatic low right on the 61.8 fib level. Still wondering if Fibonacci works? Interestingly, this looks like a clear 5 up pattern to me and a deep sharp pullback for a potential bigger picture Wave 2 low. This may still have some time to play out but we have a great low in place.

Thoughts

Well the World seems to be saved. Quite a turnaround hey? I am sure there are many commentators who are voicing how absurd this rally is. I am sure many a Hedge Fund manager is feeling truly beaten as they lift every offer in sight to cover shorts. The simple matter of the fact is, this is always how strong price moves begin. Markets bottom when they fail to penetrate previous lows. The headlines have changed and certainly the magnitude of events appear bigger this time, but the market continues to follow demonstrable patterns. It amazes me how much money is recklessly managed by some who really do not understand market cycles.

Time and time again I have talked about being prepared for a "Double bottom/Test" trade on this blog. Time and time over the past month I have stressed that the opportunity for being short for the big trade is NOT at this juncture. The recent rally has validated this and more. I look back on some of my posts and I am proud. Proud that I have learnt from my experiences. Proud that I was prepared to some degree for these events. I have not made nearly enough money (I am always happy to put my hand up) but certainly I have not been caught on the wrong side of this market. Sure I was bullish a tad early and wrong but that is the beauty of identifying the low risk/high reward trade and pursuing it. The real money is made at these turns.

To quote Paul Tudor Jones: "I develop a low risk idea on the market and pursue it from a low risk standpoint until I have been repeatedly been proven wrong or until I change my viewpoint". I love this. You just have to be willing to sell it when everyone wants it and buy it when no one wants it.

So here are some of my posts of late. This is not to gloat but it was and is my action plan. Pls read these:

http://swingtradersedge.blogspot.com/2011/08/my-experiences-in-2007.html

http://swingtradersedge.blogspot.com/2011_09_07_archive.html (this is probably my most accurate post ever)

http://swingtradersedge.blogspot.com/2011_09_12_archive.html

http://swingtradersedge.blogspot.com/2011_10_05_archive.html (the confirmation of the low)


Where to from here? Asia has bottomed no doubt for at least 2-3months. I will post a number of charts tomorrow. Short term many markets are overbought and now testing the top end of their range e.g. S&P1200/1210, DAX 6000, ASX 4250. I would not be surprised if we did see a short term pullback or consolidation. If u are a short term trader, you can fade away. Bigger picture, any big pullbacks need to be bought. This is the intermediate rally I have been calling for. This should last into the New Year (yup).  Sure our problems have not gone away and nothing has really been fixed. However, we are traders not fund managers.

Good luck out there. Focus on the uptrend

S&P500 Parallel Updated
Remains the greatest chart out there

Austin

I Have Been Trading Like Sht

Good Evening,

Excuse my language but I have been Trading like sht! No need to hide it. No need to pretend I bought the recent low the low and am riding this market trend higher. I didn't.  Pure and simple, I have made some fundamental mistakes and thought this would be a good avenue to voice this.

As Traders, we live in a world of opportunity and also hindsight. We see movements everyday that may represent genuine opportunity or just random noise. Countless times I hear cries of "I knew that would happen" or "I told you XYZ would go up". I never understood these guys. What good does that do anyone? We deal with the now not then. In fact, I think these kind of statements are indicative of truly unprofessional traders who are not planned and who have no edge. I see traders like this at work everyday. The better approach is to ask what can I do to improve myself, why did I miss the setup and what does this mean for the next trade/market going forth?

My mistakes of late have been two fold:
i) Not taking a trading setup- S&P500 Double bottom trade (it was all written here prior)
ii) Not heeding the strength of the market when it was clear we were in a breakout mode- SPI futures above 4000.

These mistakes boiled down to lack of preparation, recent pressures at work (i.e. dont lose money) and frustration. I trade double bottom patterns the whole time but I didn't have an adequate enough entry signal for the S&P500 this time round. I knew the price I wanted to get long at, but I wanted to wait for confirmation given how dangerous things looked. Sure enough the confirmation came in the last hour of trade when I was on the way to work (the joys of the Australian timezone) and thus I missed it. The market kept moving higher and I didn't chase it despite knowing we had seen the low. My lesson- have orders in above the market which confirms the move! Have a defined entry for the particular trade setup. Go at your level or go after confirmation- either way have your orders in.

I took this frustration out today by shorting the market twice, albeit with tight stops, and missed the clear underlying strength. I am usually flexible but today I was blinded. A market that doesn't sell out of resistance is bullish. Sell resistance first and if it doesn't sell, join it.

So where does this leave us? To me this market has clearly put in a bottoming pattern/failed breakdown. Failed patterns are the best. The way we have recovered 1100 is indicative of the huge short base out there and the underlying strength at this juncture. The DAX made a higher low (which I have talked about forever) as has Australia. Bigger picture, we have a lot higher to run still. Thus the trades going forth should be quite simple: i) buy the first pullback into the 15mins/60mins timeframe trend OR ii) short term look to short a climatic reversal if this keeps going and gets overextended (1155/1160)- short term trade only.



That's my roadmap going forth. That's the new plan and my method for trying to get out of these bad habits. Everyday gives us a new opportunity to improve ourselves and make money. No one likes a hindsight trader. Learn from our mistakes, be planned, and go and make money.

Thanks
Austin

P.S. Some things to get out of a Trading rut:

i) Cut size down. The aim is to get the winning mentality back and not necessarily the finanacial reward.
ii) Focus on one trade at a time. Back to baby steps
iii) Go over trading plans/setups. I always find it helpful to recognise my best setups, my best trades and then wait for these. Stay planned.
iv) Relax. Sounds tough to do but it is important. Writing helps me get my anguish out and then I can rebuild. Go to gym, have a run, read a book, do whatever just relax that mind.
v) Visualise your success

Any others? Would be interested in what other traders do to alleviate trading slumps.

Double Bottom Take 2

Morning All

I will keep words brief and let the charts do the talking. Last night we saw a vicious squeeze into the close right out of the 1070/1075 previous lows on the Eminis. Looks like a classic false breakdown that brought the bears out and got them covering. This is exactly what occurred in March 2008 before the Intermediate rally began. See here for more details on this rally: http://swingtradersedge.blogspot.com/2011/09/moment-of-truth.html#0_undefined,0. Many will call this a 1 day wonder but you need to bear in mind the current market position- we are in a double bottom/false breakdown zone with heightened bearish sentiment. Last nights action tells you how jumpy this market is and it certainly doesnt seem to me that bears are in control if one headline can get the market ripping like this.

S&P500 Parallel Scenario
This chart says it all. We saw a double bottom/false breakdown in 2008 that led to a 60day countertrend rally. This has been and remains my primary view.

S&P500 Daily:
A good double bottom pattern and candle confirmation for swing traders.

Nasdaq 100 Daily:
Another good candle reversal pattern out of the low end of the range. A low risk entry below yesterdays lows.


Eminis 15mins:
Last week I talked about the importance of the 1140 level. This held on a few occasion but when support broke, a retest of the Eminis low was the play. This is what I mean when I say buy supports first, sell it when it drops.

AUDJPY:
This really is the barometer for the "risk" trade/carry trade. Price put in a interesting reversal candle right out of the low end of the range.

AUDJPY/AUSTRALIAN FUTURES
This chart shows the correlation between the Australian equity futures and the AUDJPY. As you can see, they are very tight. With AUDJPY bouncing out of clear support and with the ASX200 at the low end of the range, this could be a great time to put on that contrarian long trade with the correct stops.

I will have more later
COME ON THE BULLS
Austin