Tuesday, 16 August 2011

Is This A Fade?

Morning All,

The SPI futures are indicated at 4295 on the open this morning given last nights positive session in the US. We have obviously seen a V shaped bounce off the recent low and yesterday we saw major outperformance in the cyclical and material sectors which is indicative of increased confidence and the hunt for beta. However, V shape bottoms are very rare. It is tough to fade a strongly trending market but a number of underlying stocks are now testing their previous breakdown levels/open gaps. For instance:

-BHP at 40
-RIO at 76/76.50
-CBA at 49.50
-WBC at 21/21.50
-WPL at 40
-STO at 12.25
-WES at 30

These are significant barriers. There is no hint of a blowout top or bearish reversal yet but I would be very surprised if this market keeps surging from here. Australia was the first market to bottom and will it now be the first market to put in a short term high?

The key futures levels I am looking at is 4300 and then 4320. I will be looking for some kind of bearish confirmation/reversal candle first before getting short. No doubt I am fading the short term trend here, but just as we had to be willing to buy it when no one wanted it, we have to now be willing to sell it when everyone wants it. This is a short term trade only!

SPI Day Session 15mins:
This is the overhead resistance zone and we are now clearly testing the top end of the range. A good risk/reward area for shorts.Note we have seen 3 clear peaks/surges into this level- a favourite reversal pattern of mine.

I am seeing similar patterns in a number of overseas futures markets as well i.e. testing the top end of range. I think the trade is to fade first and then join the breakout if there is no confirmation.

Emini S&P500 15mins:
S&P500 into solid res at 1200/1205. Possible wedge? Sell first, buy if there is no follow through

Eurostoxx 15mins:
Same kind of pattern. A base is forming here under 2350 but we sell resistance first and then buy the breakout if there is no follow through

In sum, if the market is going to fade in Australia, it is here today. A number of the underlying stocks have now met or exceeded their targets. Tuesdays are my reversal day and we are coming into some significant levels. It remains to be seen if the market does actually fade.