Tuesday, 7 June 2011

Buy the dips, Sell the rips

Good Evening,

I put out a rather bearish post on equities after the US overnight sell off on the 1st June: http://swingtradersedge.blogspot.com/2011/06/1st-day-of-month-ouch.html. For the first time in a long while, a strong initial breakout from a solid basing pattern failed to lead to a sustained move higher. This was a warning sign for weakness ahead. We have seen subsequent bearish follow through with the S&P 500 approaching my first target of 1285/1290. I believe it is far to early to call this a major bearish trend changeat this stage. A change of trend would only be confirmed to me if price closed below the last intermediate low i.e. the March lows at 1250.

I think we are seeing a natural rotation out of risk assets as we approach the ending of QE2 and as the financial situation in Europe intensifies. It is unfortunate to be on the receiving end for our Asian markets but it is the reality of this coupled world.

Tome,the best strategy to be followed at this stage is buying the dips and selling the rips, and being more short term until a clear trend does emerge once more.Looking through the charts, it appears we may be at another opportune time to buy the dip in the short term. The XJO is approaching the low end of a major range defined over the past year or so. As traders, we buy support and sell it when it fails. Today's action was encouraging with a short term double bottom pattern and a hammer on close. It is early days and the short term trend remains down, thus be nimble off these support levels.

XJO Daily:

SPI 5mins:
I called out the 4545 as good support today on twitter and was looking for breaks of 4555 for more bullish momentum. This worked out well today. This double bottom trade is indicative of base building once more.

Oz Financials Daily:

The Financial broke the recent trendline I had in place but are also right into the low end of the range. Note that price has fallen in a sharp ABC pattern where A=C. A hammer formed today and thus a tradeable low is in place.

Shanghai Composite Weekly:

Shanghai Composite has been a real regional laggard. I showed a number of key levels in the 2800 region that went some weeks back. However, looking at the weekly chart, it appears that price is respecting a major trendline off the 08 lows. I don't believe this is tradeable for now but bear in mind that price is holding in here.

Eurostoxx 60mins:

Eurostoxx June is testing it's previous lows here. Bullish divergences are in play and the setup is ripe for a Double bottom trade with tight stops.

In sum, we have seen some genuine selling since the 1st June warning. It is too early to be calling this a major bearish trend change at this stage but certainly breadth has supporting the move lower with initial supports at 1310 decisively breaking. Despite this, I am looking for tradeable lows here out of 1285/1290 and then 1250.