Monday, 15 August 2011

Reflections On The Week That Was

Morning All,

I know I am a cynic. I read the weekend papers and I cant help but cringe. The sensationalism, the drama, the retrospective reasoning. Anyone reading the financial press last week and this weekend would have thought the financial world had just ended. To be sure, the headlines have certainly changed and it may feel like we are on the edge of a precipice, but really the market continues to repeat identifiable patterns and characterisitcs. We talked about the topping patterns across assets here on this blog long before the market broke. We had the capitulation low right at 1102 fib support. There was a perfect retest of this area at the end of the week for a great double bottom trade. Despite the news, despite the volatility, nothing we are witnessing has not already happened before in the market, and the technicals continue to be the guide. It all comes down to experience, identifying low risk opportunities, and being able to put emotions to one side.

We begin the week in Asia with a nice gap in Australia and across most of the region. However, the All Ords is well advanced in its rally vs the rest of Asia and is now testing decent overhead resistance. See the chart below. We did not get the depth of the pullback that I was hoping for last week which makes me think that we may see some short term weakness out of these current levels. V shape lows are very rare (and very difficult to join). There are a number of stocks that are testing overhead gaps and the previous breakdown level- thus this is an area to be cautious and looking for potential resistance/fade trades.

4240/4250 is the 38.2 retrace off the high and a previous important high prior to the breakdown. I do think this thrust can go as high as my zone "2" in time but this first area should be significant. I would be waiting for confirm before shorting here though as V shape lows can keep going and going. I do not think we trade as low as tuesdays lows so be very nimble with any shorts.

SPI Futures Day Sessions 60mins:
Open gap and possible wedge type pattern. Note there is a good looking breakout trade in the eminis tonight above 1185 which could invalidate this.

A number of people have asked me what my long term thoughts are given the recent action. To be honest, I really do not know and I don't want to try and predict. This is why I choose to be a trader and not an investor. So many traders fall apart when they try and project beyond a reasonable timeframe. This market continues to look like my 07 parallel and if this is indeed the case, then we are no doubt set for some very tough times indeed. Who knows if another round of QE3 takes place though that completely changes the game. Whos to say that the short ban does not extend beyond Europe thus altering the dynamics of the market? We do have topping patterns in the S&P500, the Nasdaq 100, the ASX200, AUDJPY, AUDUSD and Crude. Thus for me I would be using decent bounces into the end of August/mid September to really position on the short side. The best times to be short are never after the initial panic as I keep saying.