Wednesday, 3 August 2011

Trading an S&P500 Low

(UPDATE) Looks like there has been some government intervention in EUR and S&P has just moved 7pts in a straight line from when I wrote this post. I got long and will be adding come cash open.

As per my morning post, I am now looking for a short term trading low in the S&P 500. We have seen a good move lower and as a short term trader, I am now looking to profit from the panic and hysteria at these levels. The best times to short are when everyone wants it and the best times to buy are when no one wants it. This is a short term trade only and needs real discipline and tight risk. Hopefully the charts below demonstrate my thinking at this juncture.

Firstly, we are seeing bullish divergences on the 5min chart with a clear 3 step push lower. These ending wedges and 3 push moves are ending patterns and great setups for a turn.

S&P500 5min Cash:

Secondly, price is coming into clear support/low end of the range on the Daily. As shown, 1245/1250 is the area of the previous March low and also an area where A=C off the high

S&P 500 Continuous Futures Daily:

Finally, there is also a clear fib relationship between the 2 major waves lower off the July high. Wave (iii) or C is 1.618(i) at 1246.

S&P Futures 15mins:

Thus there is a clear buy zone at 1246 to 1250 in the S&P futures. I would be buying a small position when the cash market opens and then adding with confirmation i.e. hammers/break of the ending wedge/whatever confirmation from price you use. This is a great risk/reward trade with stops below 1240 and the target at least 1265/70.

As a final backdrop, AUDUSD has now played out my Double top pattern and I would be covering shorts. Once again, you have to develop a low risk idea at all times and characterise the market for the best possible trade. Here we are trading back into good supports and the upward trendline.


Morning Thoughts

Morning All

US indices had another wide ranging down day overnight and the market continues to confirm the analysis presented here. It is all getting very real. I have a lot to get through before the open so I will keep this post brief with more to come this afternoon.

We have seen 2 wide range days down in the S&P 500 from recent high and I anticipate a short term trading bottom/capitulation low tonight. Markets often turn after a 3 day move from high to low. Key areas to watch are 1245/1250 and 1240 futures where there is a confluence of support and relationships. I am sure there are many technicians now who are now calling for a confirmed H+S top and iii of 3 down etc which makes this ripe for a capitulation low. From here, I am looking for a short term bounce back up to 1280s and this is another great area to add to shorts. This is short term trading only, the bigger picture is not good.

I have been stressing many bearish patterns and distribution profiles across markets. S&P distribution, Nasdaq Megaphone/Triple Top, Shanghai breakdown, ASX200 triangle breakdown, Copper bearish reversal candle, AUD double top etc etc. This continues to play out and it has become increasingly likely that a major high is in (short term bounce aside). I thought the market was following the 07 profile and unfortunately I put this aside 2 days before the high. The similarities look eerie to me.

S&P500 Daily 07
Note that a genuine turn out of the low only began with 2 strong hammers and after real panic. Look for this before getting long for a longer swing.

S&P500 Daily Current

ASX200 Daily:
ASX200  we have been in a volatile range from 4450 to 4650 over the last month or so and this will be broken today. We have minor supports at 4315 first thing today but I think we are more likely to see a thrust down to 4200/4250 in the coming days. No need to step in front of this yet given the breakdown of the recent range.