Sunday, 4 December 2011

A Little Present From Santa

A lot has happened since my last post. It is amazing that during just 1 1/2 weeks away from the screens, the picture of the market has altered so dramatically. I guess that is the nature of the current volatility.

I could go into depth about some obvious setups in the week prior but that will do us no good. We deal with the present. I have always stressed that being flexible is key in successful trading. I feel this is very much one of those times to respect the underlying bullish price action. My past posts of late have all focused on the bearish trend, the markets failure at the 200 day moving average, and the bearish parallel with 07. As I scan across charts, it appears very clear to me that we have now decoupled from this scenario. Is this just a bear market rally? Quite possibly but I believe this will continue to move higher in time and price before any meaningful pullback or trend lower. Look for a continued move higher at least into the first trading week of January.

In the short term, it looks like Friday's Jobs reports led to a high. Use this pullback and retracements levels to get Long into this new trend higher over the coming days. If 1200 is breached to the downside, we know that this indeed is a bear market rally and one giant headfake for bulls.

Here is a rundown of markets as I see them:

The Chart is a bit of a mess right now. However, price closed higher everyday this week! This is indicative of a KICK OFF new trend higher. We are headed for the 200 day moving average at a minimum. In the short term, Friday looked like a short term blow off top. Use the pullbacks and dips to get long.

We have a 3 wave rally up and a 3 wave rally down, thus my natural inclination is to think that this market is headed higher in a 5 wave move to complete a flat. I was shown a very interesting parallel by a colleague Kurt Dalton a while back, and it appears this is playing out with precision with the 2010 advance. The target is right up to 4600/4700 which is an open gap and the 61.8 Fibonacci retracement and I expect this to be hit come mid January.

ASX200 Current:
2010 Parallel:
Note the 3 wave ABC moves followed by a Kick off candle and strong trend higher into the open gap target.

A failed Head and Shoulders patterns. FAILED PATTERNS ARE THE BEST and I have consistently stressed this in the past. We had a confirmed break of the neckline which set off stops and short trades. However, price has now recaptured this level with genuine strength. Looks like a classic bear trap. Join this move higher in coming days with ultimate targets at 6500/6600.
That one closing candle says a lot. Jack Schwager calls these candles "wide ranging days" which in themselves are a trading signal to get long, with stops below the low of the candle i.e. 1200. Wednesdays strong upside day was also on volume of 1.5bln which makes it one of the best I have seen in months. I think a natural target for this move higher is back up to 1300/1315. This is the FIRST time we have decoupled from the parallel. If this was a genuine trend lower/breakdown, price would not have rallied this high so quickly. 1200 has become my marker and line in the sand- bulls are in charge as long as we hold above there and I am looking for pullbacks from Fridays high to get long.

To be clear, I am not saying we are going to new highs. I still believe we have a Market high in place and a bigger picture bear trend in play. However, the market may just need more time to consolidate and rally before a genuine move lower can begin. I want to go with that strong candle and not fight it for now.

These are all Daily charts and bigger picture scenarios. Going forth I will also write a Daily short term trading post pre-open for the SPI/ASX200. I realise a lot of my readers are looking for more short term actionable ideas in our local market and I now have more time to deliver this material.