Friday, 24 June 2011

Hammer Time

Morning All,

A volatile session last night that resulted in a test of the recent lows and a strong bullish reversal. Bullish hammers have been left in a number of markets such as the S&P500, Nasdaq 100, AUDUSD and EURUSD. Rarely do you get a "clean" market bottom and I feel that last nights action is indicative of base building with the bulls coming out on top. We saw this kind of back and forth action at the July, August and November 2010 lows. No doubt I was worried as I hit the hay stacks last night but ultimately it is fear and panic that creates genuine market lows and turning points. I received 2 emails PRE US MARKET OPEN from supposed prominent technicians warning about pending disaster etc and there was a frenzy at the usual bear blogs (386 comments at Danerics "Eminis update"- no offence meant, just an observation). Seems to me these are the correct sentiment conditions for the bear squeeze to now get properly underway and confirm my technical outlook.

I try to focus on Asian setups and technicals. However, given last night's action, I feel it is very important to highlight a number of overseas markets.

Very wide ranging candle and test of the previous lows. Bulls came out on top with a bullish hammer left. I love to get long on close having seen these kind of candles. A clear range has now been established from 1260 to 1295/1300 so look for breaks of either for full confirmation.

Nasdaq 100:
A bullish engulfing candle left right at support. Who better to lead the charge than the high beta tech sector. This looks like a strong base pattern to me. Note that the low was formed on a perfect 100% extension of the previous wave down. Buy more if/when resistance breaks

S&P500 Daily:
This chart shows some of the lows that formed over the past year or so. Note that there is often a period of back and forth trading before a genuine breakout ensues.

On Twitter last night I said "that 1.06/1.0650 level is stiff res. Buying support at 1.05 and 1.045, selling below". The 1.045 level worked like a treat with a strong bullish reversal. Only if price breaks above 1.065 now would I deem a good low in place

This is clearly a 3 wave move down from the recent 1.47 high. To me this implies this is a corrective pattern and NOT the beginning of a genuine breakdown for now. Looking like a triangle similar to AUDUSD.

What does this mean for Australia today? Price tested the previous lows overnight at 4435 and held in a strong double bottom play. We are set to open at 4485 which is right in the middle of the recent range thus no obvious trade here. Support is 4450 with resistance at 4495/4500 and then 4525. I will looking to  join this overnight bounce out of the right level to see if there is any continuation. If there is no bearish reversal candles out of those resistance levels cited, look for breakout trades after the first 30mins and hold to the close. Ill update on twitter throughout the day.

Bigger picture we will have a confirmed short term trend change if price can trade above 4555 i.e. High, higher low, then new high. See chart below

XJO Daily:

In sum, I believe we saw an unsuccessful breakdown attempt last night in overseas markets. I have been leaning bullish here the last few days and I believe there is enough evidence in place to confirm a strong tradeable low. 1295/1300 seems to be a formidable barrier so look for this to break to add to inital positions. Friday trading is often a lottery but look for 4495 and 4500 in Australia to break for more momentum higher.