Monday, 14 November 2011

Monday Musings

Morning All,
A rather lacklustre start to the week here in Asia. We gapped up 1.5% the open on thin volume in Australia and we have slowly grinded lower throughout the day (just closed FLAT!). I thought I would keep it rather simple this morning and run through a number of things on my mind.

ASX200 Today:

-Fridays rally in the S&P500 was on woeful volumes of 790m only due to Remembrance day. This is the lowest I have seen in months and not indicative of a new impulse move higher.

-The pattern in the S&P500 looks like a clear triangle. A break above 1275 should trigger a "breakout" but I would be very hesitant to join this move given the patterns across other markets and the continued failure at the 200day ma. IN FACT I AM SELLER AT 1265/70 WITH TIGHT STOPS looking for a move back down to the 40s

-The DAX, NASDAQ and AUD, EUR all show very clear Head and Shoulders patterns. These are not my favourite patterns but no doubt they are as clear as day to see. Does that make them invalid? Context is the most important thing in pattern recogniton and note that these patterns are forming after a sustained rally off the October lows that has alleviated a lot of the bearishness. These are the best conditions for putting on shorts.

-There was a potential false break on Friday that got may have got some bears covering. The volume in futures and equities does not validate this however. The market has now rallied sufficiently into great levels to put shorts on. The real trigger comes on close below those supports. When support drops, you got to join it.

-If I had told you 2 months ago that the market would be 12/13% higher, what would you do? I think you would have seen this opportunity as a gift from the gods to get out/get short. Now has anything really changed?

-My major concern for the bearish scenario is the concept of TIME. I have reiterated this a few times. The sell off from the high to low was 5 months. We should expect the rally to be at least 1/2 the time of this i.e. 2 months+. We are closer but not there yet ideally. Furthermore, end of November/December is often seasonally a very strong time of year given end of year dressing This is when all funds are bench marked and trust me, it does have an impact on stocks. That doesn't get investigated though.

NASDAQ 100 60mins:
Looks like a topping pattern to me. Needs confirmation.

SPX 500 60mins:
The market held right onto the trendline I showed here last week. Could be a triangle. Bears need this to drop and soon.

DAX 60mins:
Looks like a H+S to me as long as price doesnt break 6200 on the upside. I would short into this with stops above 6200. Add if we break Fridays lows.

Another interesting topping pattern playing out potentially with a right shoulder forming. Price should not break above 1.04

False breakdown on Friday that will have bears frustrated. If this rally was to run out of steam and price retraces to Fridays lows, then the pattern really is in play.

Potential 5 down and rally into previous 4th/resistnace?