Thursday, 2 June 2011

1st Day of the Month- Ouch

Morning All,

Well I certainly wasn't expecting that overnight. Perhaps I have been somewhat complacent after seeing a great turn out of my buy zones. 1345 in the S&P Eminis and 4740 in the SPI were my first targets but I was anticipating a much higher bounce in the upcoming days. We may not get that.

A few things from last nights session in no particular order:
i) European Indices closed right back down into their previous base zones. This is bearish and indicative of a failed breakout. I for one thought we had seen a strong range expansion but price has swiftly reversed. There is no new low yet but this is bearish.

ii) Breadth in the US was solidly bearish. NYSE Declining issues closed at 4.3:1 vs Advancing issues on strong volume of 1.1bln issues.

iii) High beta US indices noticeably underperformed with the RUT -3%. The S&P 500 opened on its high and closed on its low with no bounce of any sort. I would expect somekind of continuation of this move at a minimum.

iv) Last night was the first trading day of the month in the US. The performance on the first trading day often sets the tone for the rest of the month. I showed an interesting chart reflecting this on my previous blog and I will dig this up.

v) Price failed to hold above the declining wedge pattern. Thus, it looks like a bull trap has played out here. No new lows have been made yet but if 1313/1315 breaks on the Cash index, I think we could be looking at a much larger and deeper move right down to 1290 and possibly even 1250.

I hate to turn bearish after 1 night of action especially given no new lows have been made. However, the stage was set for a good rally after a long drawn out overlapping corrective move off the Osama top. The rally has now quickly been beaten down. Any break of the recent lows will open up a lot of selling.

In the SPI/ASX200 today, we must always trade our own market based on its own characteristics. We are looking at a possible 70 to 80pt gap down. Thus, my gap strategy is firmly in play today but I will be very wary of any failed rallies in morning trade.

Support levels of interest:
i) 4630/4635- this was the previous key pivot on the 25th and 26th of May leading to the recent breakout. The night session also closed here overnight.
ii)4615- open gap but this is a minor level I believe
iii) 4600- round number support. I will be playing this

Resistance levels:
i) 4650

I will leave you with some charts showing my concerns:

Emini June 60mins:
Failed breakout

Dax June 60mins:

Good Luck