Wednesday, 14 December 2011

Is This Still A Buy?

Morning All,

Well last night everything was going to plan as I went to bed, with the SPI trading at 4220......and then Ben spoke. The market obviously didn't like what it heard and the S&P took a small tumble closing just off its lows. Commodities all joined in the rout. Quite crazy that this market is acting like a spoilt child, throwing toys out of the pram as we didn't get any beloved QE3 and more free money!

Does this invalidate my recent bullish outlook? On the contrary, I think we may have seen the final subdivisions for a genuine low. Last night volume was not indicative of a new leg lower with only 850m trading on the NYSE. Sure it may seem that all the catalysts have now been and gone, but these are often the exact conditions that lead to a turning point. If the crowd is all leaning bearish, be careful. Lets go to the charts and start with the S&P500.

Emini S&P500 15mins:
Price did rally nicely initially only to be capped at that downward sloping trendline. However, we are still very much in the buy zone/support zone. This is a confluence of the 38.2 retracement, the low end of a potential wedge, and an A=C move off the top.

Emini S&P500 5mins:
This shows the potential wedge pattern in more detail. Some would label this as complete with an E leg now in place. However, for me I see clear symmetry with A=C at 1220. This is such a great area for low risk buy entries with stops around 1215/1210.

Also note that volume has been anaemic of late. Sure we would expect this during Christmas, but equally this is not indicative of a new breakdown lower.

And so to Australia today. Yesterday the plan was to look for the double bottom trade and my 4170 level proved to be a great turning point initially with market bouncing strongly up to 4225. However, as mentioned, we were beaten down in line with US markets.

SPI 5mins:
Support area was perfectly tagged. Breakout of 4205/4210 thus confirming the setup. However there was no follow through and we are now right back down at the previous days lows.

Just as with the Emnis, I still think we should be looking to buy this zone as traders. The chart below shows a clear support zone fro 4150 to 4170. Sure this may not be a clean double bottom but this support zone is still valid. I do have a small concern given our weighting to the resources and gold. Nonetheless, the chart below shows the setup with a potential 5 wave move down to complete us this am.

SPI 15mins:

My range today: 4158 to 4200. Outlier levels 4125 (61.8 retracement) and 4150.

My plan today: I will look for any initial sell off into the Sycomm lows of 4157/4158 to get long with tight stops. This is a short term trade only. If we cant hold these 50s today, I fear that this bullish setup is invalidated, but for now focus on buying support until it drops. I will be looking to get out of longs at 4180s and shorting at 4195/4200 with tight stops. Longer term traders should wait for a solid breakout/60min candle closes above 4205/4210 for the big picture Long trade