Tuesday, 13 September 2011

Intermediate Low Is In

Good Afternoon All

(UPDATE) Asia is selling off and this is now completing all the Asian setups I showed here: http://swingtradersedge.blogspot.com/2011/09/getting-ready-for-swing-low.html. Everything is now coming together, just need that squueze event.

I thought I would put myself on the line today and call an intermediate low in place for US markets. Yesterday I put out a post looking for the bigger picture swing low and I think there is enough evidence out there to now confirm this. We did not get a clean double bottom pattern and certainly the rally off the low doesn't look impulsive. However, the S&P 500 has successfully defended the 1130/1140 zone on several occasions and held every time. The DAX has hit my 61.8 fib retrace and put in a small reversal candle. The Australian futures hit the key 4000 level and have rallied 80pts. The EUR hit my 1.35 level and rallied some 150pips. And most importantly, every single technician I read is bearish and I know that these are the kind of moments when one has to stand out.

The market continues to hold the 1130/1140 area despite the panic and fear in European markets. When a market continues to hold like this, it is sending a loud signal of underlying strength. One more strong session will lead to a breakout.

S&P500 15mins:
S&P 500 Daily Current:
A number of hammers have now formed at the low end of the range. This is the Daily confirmation I was waiting for.

No doubt the S&P500 looks like a 3 wave move off the low. However, there have been many occasions in the past where the S&P has staged a strong breakout despite this. Look at the examples below. Every Elliottician will be labelling the current setup as a iii of (iii) of 5. I am yet to see anyone successfully predict/anticipate a iii of (iii) and they are in fact one of the most fadeable patterns out there. Dont be that bear looking for the end of the world- they are black swans.

S&P500 2010
Note the initial rally off the July low was a clear 3 wave push. The market tried to retest but put in a higher low. This led to a significant breakout and rally. Interestingly, this breakout occurred as the market began to price in QE2. Same again with QE3 around the corner?

S&P500 2006:
A similar 3 wave push and retest was the initial pattern before this strong breakout
S&P500 2005:
In 2005 the S&P formed a very similar pennant/flag type pattern to the current setup. There was a higher low that formed that led to a significant breakout.
And finally to the heart of the crisis- the DAX. This is now forming a classic ending wedge pattern right at the 61.8 fib retrace level off the 2009 lows. I dont know what will trigger the breakout, but I do knnow there are a lot of shorts out there and Central banks doing everything they can to fix things.

DAX Daily:

In sum, I think the markets are on the cusp of a major breakout. Obviously there is some work to do before this can be fully confirmed but I am happy to get some risk on board first and then see how it plays out.