Tuesday, 2 August 2011

It Wasnt The Bears Who Got Trapped

Morning All

O no. US lawmakers did what was widely expected and the market followed script.....for less than a day! I must have read about a "relief rally" a thousand times over the weekend. And what we got instead was a good old slap in the face. Last nights action was nothing but bearish with the gap up completely filled. I highlighted a good turning point area on Friday at 1285 but the inability of the market to hold onto any kind of gain is indicative of a market in distribution. The heavy hitters used the bounce to sell stock. NYSE advancers were as high as 1600 on the open and closed at 646! The price action itself speaks volumes. This could be a really horrible week indeed and I have growing conviction that we are on the cusp of a major move lower. Are we looking at a potential breakdown into the end of August which will force Ben's hand come the Jackson hole meet? Don't rule it out. Now that this debt ceiling charade is off the agenda, the market is turning its attention to the economy. "It's the economy, stupid".

S&P500 Intraday
The importance of waiting for the cash open! I stressed this in my comments field last night and last nights action clearly illustrates paying heed to actual trading vs the futures driven after hours robotic ramp ups. A market that gaps up 20pts and tops in the first 5minutes is not indicative of a healthy market. 1305 has now become major res and a line in the sand for me.

Also note that NYSE new 52 week lows surged. Interesting that this has spiked beyond the June readings despite the fact that price has not breached this low yet. This is yet another sign of distribution.

NYSE 52 week lows:

S&P500 Daily:
I have seen many Elliott counts depicting a Wave 4 triangle. The fact that the biggest bear blog out there (and worst trading blog) has been showing this bullish count makes the cynic in me disregard this wave 4 idea. The thing with Elliott is that you really can create any count all within reason. Here I have shown a valid count that shows this market has topped and on the verge of a strong sell off. Breadth supports and this is all in line with the other Daily distribution patterns I have been showing here. Also note that the market is retesting the 200SMA. This is not healthy. The first bounce worked well but the market should not be retesting this moving average so soon. Read High Chart Patterns blog for more information regarding this.

Copper Daily:
Copper put in a bearish reversal candle right at the top end for the range. I would expect some follow through to the downside at a minimum.

So where does this bring us in Australia? We had a false breakdown on Friday that was followed by a bullish wide ranging day on Monday. Futures are indicated at 4390 on the open thus ALL OF YESTERDAYS GAINS HAVE BEEN REVERSED OVERNIGHT. Not good action and this is all in line with the triangle pattern I have been showing. Expect a thrust lower in the coming days and I am looking for 4200 (minor support at 4325).

ASX200 Daily:

Today I will be watching the 4378/4380 level on the SPI futures and will be shorting if this level drops. Look for intraday resistance at 4415 and 4425.

In sum, the S&P500 remains in a period of distribution within a range. It is increasingly likely to me that we are on the cusp of a breakdown and the high is in. The technical picture across Asia is a mixed bag with Australia being the major underperformer. 2600 is of major importance for the Shanghai Composite and if this level goes in the coming days, I think the whole region will be dragged meaningfully lower. I cant stress enbough the need for preserving all capital and keeping it really nimble here.

(UPDATE 11am Sydney time) The ASX has held the 61.8 retrace from Mondays high to recent low all morning. Price has failed to breakdown thus far and taken out my intraday res levels. If this is going to reverse lower, it needs to do so now as Asia comes in at the 4435 level. For now, bullish action).
Good luck