Tuesday, 27 September 2011

Double Bottom Patterns

Good Afternoon,

In my last post I talked about the possibility of a Double bottom pattern playing out in the S&P500 and the DAX lows holding in. This occured yesterday with rumours circling of a Eurozone bailout deal in the pipeline. We will find out more in the upcoming days if these claims are substantiated. In the meanwhile, there are a number of bullish patterns forming across markets for the brave. The initial trade buying at the low end of the range has played out. It is too early to say whether a genuine low is in from the Daily charts but there are some good low risk/high reward trades.

S&P500 Daily:
Test of the previous lows and a strong reversal on Monday. Note that a higher low has formed whilst the DOW and Russell made new lows. This could be deemed a bullish divergence. The key 1140 level was recaptured last night. Very whippy and volatile but great opportunities for traders.
Dow Jones Industrials Daily:
Test of the lows and held. This is how new trends begin.
Russell 2000 Daily:
DAX 15mins:
A perfect double bottom trade off 5000. This is the heart of the crisis and if this market breaks out from here, this should really buoy markets.

Crude Daily:
Another double bottom pattern in Crude. Note the strong reversal candles off the previous lows.
In sum, there are a number of encouraging signs emerging after last weeks sell off. Price has held and reversed from the low end of the range. Also note that Copper has traded right into the 38.2 Fib retrace from 2011 highs to 2009 lows and held in. The ASX200 is putting in a strong day today, reversing all of yesterdays losses. A possible truncated low could be forming here but once again it is early days.

It all comes down to your timeframe. Traders who use the Daily charts should see these as encouraging signs and looking for follow through to confirm a more meaningful tradeable low. Shorter term traders would be looking to get out of longs as we are now back in the mid range.

Sentiment remains very bearish. Governments are thrashing out deals to stem the panic. I have no idea whether or not any deal will be passed- and that is why I use the technicals to guide me. I have consistently stressed that I don't think this is the area to be short for longer term swing traders. Sure I missed the sell off from the recent highs but I continue to believe that the best traders are willing to buy when no one wants it and willing to sell when everyone wants it.


p.s. This is the Emini Dec 5min chart I am looking at tonight. As long as price holds above this 1140/1150 area, I am looking to rebuy this market with the correct stops.