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.


Targets For Ze Rally

Morning All

I received a very flattering email last night from a reader and I thought I would re-publish here to start the post:

"I’ve been following your Blog mate and it is so impressive.The content and presentation are first class so well done and I hope your analysis is paying dividends.

Why am I writing? – I’m not really sure other than to say how impressed I am with the huge amount of work that clearly goes into it each and every day. I will certainly recommend it to those who deserve it!

Well done old boy."

Thank you. Receiving emails like that really makes writing this worthwhile. I started this blog first and foremost to help my trading by structuring my ideas and setups. I also wanted to reach out to others who trades these markets in Asia. No doubt trading can appear a rather insular world at times. By communicating with others and by relating experiences, I believe traders can gain enormous value not only to improve trading but to alleviate a lot of the loneliness associated with trading. We live in a social networking age thus we should be using this to our advantage. 

And to the markets. This morning the SPI is indicated at 4735 which is almost at the open gap at 4740. Thus the Eminis and SPI have reached my first target levels. There are an array of targets from here all the way up to 4850 for this bounce. My plan is to focus on this uptrend as I really don't know how high or how quickly this move will materialise. Bear these levels in mind and look for possible reversal candles for short term scalps only. The bigger picture is bullish for now and let the experiences of the move off the Feb/March low be a guide. 

ASX200 Daily:
These are the Bollinger bands I showed the other day which were a major source for my contrarian bullishness. As you can see, once a BUY signal is given (a close back into the bands), price has a habit of snapping right back to the other side of the upper band. This would coincide with roughly 4800+ currently

SPI Futures 60mins:
I believe the major target is 4800 which is the big round number and the former breakdown level. Note the 61.8 retracement level also comes in at 4850. All these are reasonable targets for this move. 

SPI 15mins:
Today note there is resistance at 4740 i.e. the open gap, and former highs from 4770 to 4780.

My plan today: We are looking at a 20 point gap up from yesterdays close at 4711. Thus my Gap strategy is in play this am. I will wait for the first 15mins to trade and buy or short breakouts from this morning range. Certainly, we have risen quite rapidly over the past few days so price may need to consolidate or fill the gap before moving higher. However, let price action do the talking. I will also be looking for possible fade reversal trades at 4770/4775 and I will be looking to buy support at 4710 and 4700. Any ST consolidation patterns should be used to get into this trend.

Just as a reminder, the chart below shows how the rally manifested itself in March this year. No pattern ever plays out exactly but I show this to show the importance of following the TREND once it becomes clear we are in a new phase. We do have target levels but they are merely that. Never let your eyes off the underlying price action

SPI 60mins March 2011:

I have some other interesting charts across various Asian indicies. Got to hop now but will post later