Thursday, 1 September 2011

Turning Bearish

Morning All,

The end of month ramp job has done what it was supposed to do and we have seen a strong run up across markets into this date. I now think there are some interesting shorting opportunities with a great risk/reward. In my last post I commented that the market was feeling tired. I now feel that enough evidence is there to suggest good shorting opportunities.

First things first, we have a classic A=C move off the low in the SPX at 1229. The market gapped up on the open, made its high in the first hour and then grinded lower throughout the day. I think this is now a great low risk short entry for shorter term traders with stops above 1229. The first day of the month has a habit of setting the tone for the rest of the month. For instance, the S&P high was on the 2nd May (the first trading day of the month) leading to a 70 point fall; August 1st marked the raising of the debt ceiling which saw a sharp reversal lower leading to a further 150 point fall. These relationships have been going on for the past 2 years and it is not just a coincidence.

S&P 60mins:
Clear A=C off the low and reversal right at the top end of the trend channel. I am short now and a move below 1200 would confirm the setup.

S&P 15mins:
The recent action looks like a clear ending wedge to me right at the top end of the range

I continue to highlight the S&P 500 parallel with the initial move out of the 2007 market high. Once again, I find the current juncture and wave structure very interesting here. In 2007, we saw one final move lower to complete a Wave 5/double bottom before the intermediate rally began. I think we could also be looking at a possible turning point here for one more retest of the low before a stronger rally can begin. If the market doesn't sell here, than this parallel is gone.

S&P 2007 Move from the high

S&P 500 2011 current move from high

Bottom line, the US markets are at a interesting juncture. I think a tradeable high may be in. Breadth has certainly deteriorated and there is a lack of volume showing no interest to buy stock at these levels. I also find it interesting that lead risk assets such as the AUD did not rally last night despite the equity mark up.