Friday, 19 August 2011

A Fade Indeed

Happy Friday

We got the sell off last night out of the top end of the range as I had hoped. Interestingly once again, Australia was a lead market for our worldwide peers as we put in our high (at the 4300 level :)) prior to the global sell off. This market remains technically driven. Just as the S&P bottomed at the Fibonacci 38.2 retrace off the 2009 low, the recent short term high at 1208 the other night was right on the 38.2 Fibonacci retrace off the May 2011 high. These numbers do not lie. Once again, it all boils down to identifying the low risk trade. I talked about fading at the top end of the range in my last post because there was such a strong area of resistance and a great low risk short entry. This trade has now played out:

Just a quick note on last nights sell off. The S&P 500 cash market gapped down on the open and then went sideways for the remainder of the session. This is not wholeheartdely bearish to me vs what we have seen of late where the market opens on its highs and trends lower closing on its lows. Today is option expiry and I am told that there was a huge open interest in the 1150 strike (5x the normal open interest). It is little surprise to me that we got to this level so quickly. Breath was not as intense as what we have seen in the past with volume of 1.5bln on the NYSE vs the 2bln we saw as we approached the lows. Thus all in all, I do not think this is the end of the world move. I think that we are looking at a normal retracement/retest of the prior rally. This will provide another great buying opportunity in time but we are not there yet. My levels in the Eminis for a potential turn are 1125 and 1100.

So to Australia. Sure enough, a number of the underlying stocks failed at the open gaps/previous breakdown levels i.e. BHP at 40, CBA at 49, WES at 30 etc. This coincided with a perfect bearish reversal out of the 4300 level in the SPI futures. All written here in this blog. So where to from here? I believe that we have a climatic low in place. Thus, our highest probability trade is to buy the retracement out of this recent high. This is easier said than done but I am looking at 4100/4080 and then 4000. I do not know which of these levels will prove to be the low just yet but I imagine we will need more time to form a tradeable low than just a 3 day pullback.

SPI day session 60mins:
This is the chart I showed the other day. A great reversal out of the 4300 level and ending wedge pattern. Note the 3 peak patterns that was the precursor to this topping pattern. Learn these setups.

SPI 60mins:
These are now the targets for the pullback. I think we will need more time before a solid low can form but bear these levels in mind for now.

Looking across Asia, there are a number of great double bottom trades forming. Get ready to buy a confirmed rally out of the previous lows. This would coincide nicely with an Eminis double bottom and a fib retrace in Australia.

Nikkei 15mins:
The central bank is allowed to buy index ETFs as part of their mandate to support the market. This is a great double bottom trade. Do not fade this intervention at such a good buying level.

HSI 15mins:
Another good double bottom trade lining up here soon:

India Daily:
Looking at a great A=C trade here into support. Look for a bullih Daily reversal candleto confirm

Today I am looking at 4080 and 4100 as supports in early trade for the SPI futures. I dont think we see a strong rally out of these levels given it is a friday and given the overnight sentiment. However, as ever, buy support first and sell it if it drops.