DAX Strategy

Despite being based in Asia and primarily focused on Asian markets, at times we have to look to our overseas peers to gain insight into market developments. In particular, at this juncture I see a genuine bullish turning point in the strongest European equity market- the DAX. Not only does this present a great trading and investment opportunity, but it is also of central importance to global markets I believe for the upcoming few months.

DAX Weekly:

• Price has retested and held the key upward sloping 55 day moving average and trendline. Here I have emphasised the importance of this 55ema since the start of the bull market began in 2009 in forming both intermediate highs and key lows.
• The sell off from the recent March high has been the first meaningful pullback and test of the 55ema since the price breakout in Jan 2012. Buying pullbacks into a clearly defined uptrend is a low risk/high reward play. Risk for the bulls is now clearly defined below 6500.
• As is stands, price has put in a bullish reversal candle. We await final confirmation at the close of today.
• The target for a new move higher would be up to the previous highs located at 7200 initially. There is very much the potential for a retest of 7600 but it is important to see how price reacts at 7200 first.

Weekly Bullish. Price must hold above 6500 with 6400 an outlier. The trend remains up and this "correction" should serve as a great opportunity for investors to increase exposure to this market. A weekly close below 6500 would put my scenario in Jeopardy.

DAX Daily (i):

• Price put in a low right on a confluence of the 38.2 Fib retrace off the last major swing low, and the upward sloping bullish trendline.
• Note most importantly that the high of the strong bearish breakdown candle on the 23rd April has been taken out. This is indicative of a climatic low and bear trap, especially when coupled with the support confluence.

DAX Daily (ii):

• Head and Shoulders patterns are "classic" chart formations that have a very high failure rate. In technical analysis, some of the strongest trading plays are actually failed patterns. The crowd is positioned for an outcome and when it fails to materialise, the market is forced to cover with a strong squueze ensuing. A market that fails to breakdown has underlying strength.
• The signal for a bear trap to get long is a bullish close back above the neckline. We have seen 3 consecutive bullish candles above this neckline and this is strong confirmation of a meaningful low.

DAX Daily (iii):

• Elliott Wave count highlights the potential end of a wave 4 correction with a retest of the previous highs up at 7200 the next probable swing.
• The key to this count is identifying the strongest momentum within the wave iii of 3 up. The recent low has formed in the previous iv of minor degree.
• A break above 6800 in the short term should signal a new swing higher underway and likely 5th wave up.

DAX 60mins (i):

• Dropping down a timeframe, we can see clear bullish momentum divergences coming in on the low and a strong subsequent rally. Price tried to break through key supports on 3 occasions but failed to follow through.
• This rally has now broken out from a trend channel and the short term open gap has been filled.
• After such a prolonged downtrend, it is likely that price will need to consolidate in a sideways like fashion between 6800 and 6600 before the next break higher ensues.

DAX 60mins (ii):

• The DAX looks to have completed an ABC corrective pattern off the high. Note the relationships throughout the pattern which validates this most notably Wave 1=5; Wave 3=1.618 (Wave 1)
• A move above 6800 would confirm this pattern and act as a trigger for breakout traders.

DAX 60mins (iii):

• Just keeping things simple, we have seen 7 clear waves from the recent high. This is a corrective pattern and thus implies a new trend higher. If price trades below 6500, this invalidates this interpretation and thus this becomes a clear marker and stop loss level.

DAX 15mins:

• Finally, we have seen a 5 wave impulse move off the recent low. This implies another 5 wave move at a minimum after a small corrective phase. I view this as evidence of a meaningful trend change and the beginning of a new move higher.

In sum, the correction off the March highs has halted right into the weekly uptrend. Buying dips into a clearly defined uptrend is the name of the game. The lower timeframes are displaying bullish price action and follow through off the 6500 low. Elliott Wave counts also point to a meaningful low and the resumption of a new trend higher. The risk to this view is a break back down below 6500.

In the short term, 6750 to 6800 is strong overhead resistance and this should cap price for the next few days, especially after seeing a clear 5 wave move up off the low. Price has also traded from low to recent high in 3 consecutive days so expect some weakness in today's trade. On the downside, there should be very strong support at 6600 to 6650 and short term traders should be looking to buy that dip. Breakouts above 6800 would confirm a new trend up into the targets below.

Targets for a new uptrend:
1) 6950 to 7000. This is an open gap target from the 4th April. Note the 61.8 Fibonacci retrace off the March highs to the most recent lows comes in at 6930.
2) 7050. Swing high and 78.6 retrace.
3) 7200. March high and major target for this move

Any break below 6500 would invalidate this bullish interpretation and short term traders should have stops under this level. Note for longer term traders there is a bullish outlier level at 6400/6350. This is the October 2009 high and the 38.2 retrace from 2012 high to September 2011 low.

Key risks to my analysis remains the EUROSTOXX and the unravelling of the debt crisis. Key support levels there remain 2250 and 2200. The latter level should be formidable.

Thanks
Austin

S&P500 Trading Plan

My Emini S&P500 trading plan for tonight can be found here: http://marketletters.blogspot.com.au/2012/04/emini-s-plan-tonight.html

Thanks and Good Luck
Austin

Tuesdays Tuesdays

Been some good calls of late. This mornings post can be found here: http://marketletters.blogspot.com.au/2012/04/morning-all-well-we-got-it.html

Thanks
Austin

USA Weakness Ahead

Morning All,

I wanted to spend some time talking through some setups in the US this morning. I think we are on the cusp of a potential breakdown into 1340/1350 at a minimum and thus this is of central importance to global markets. My Asia targets in the XJO, A Shares and the Hang Seng (1st target) were hit to a tee yesterday: http://marketletters.blogspot.com.au/2012/04/asia-setups.html. We hit 4377 in the XJO cash and 2500 in the A Shares, and then sold off. We are looking at a small gap down this morning and lets see if this now picks up steam.

So to the US. I wanted to give the rally the benefit of the doubt but clearly we have struggled in this 1385/1390 zone. My line in the sand was 1370 (cash) and the low overnight was 1370.5. Thus we haven't broken through supports yet but I believe it is only a matter of time. I was watching the Emini S&P500 intensely yesterday during the Spanish auction and there was a large offer up there at 1390 that just would not budge. Repeated attempts to break higher were slapped down. I have always said that to be a good trader, you have to be flexible- well I believe now is one of those points.

Let me expand:

S&P500 Daily:
We are still holding the upward trendline BUT each bounce out of this line is getting weaker and weaker. Each repeated test of this line implies genuine weakness. Price should bounce and not look back. When it becomes obvious, it is prone to a breakdown. In my trading, I use the "3rd test" as the prelude to a breakdown. Well here we are.

S&P500 60mins:
Keeping things simple firstly- this is a clear bear flag under resistance. Price failed to break higher. I could count this an A=C pattern off the recent low as price is overlapping and not impulsing. In the bigger picture, breaks through the 1370 support level open up a potential C leg lower but that is secondary consideration for now.

S&P500 5mins:
Zooming in more detail, price tried to break above its previous highs and failed last night. Some will argue that the move into the high looks like a 3 and the move lower last night also looks like a 3 wave move. Well pls note that the Emini futures did make a new high at 1390 vs 1388.75 previous high (18th April). This could be a truncated 5 wave move in the cash= bearish.

Emini 60mins:
Here is my simple short trade setup. I am shorting 1/2 size below the 1378 level. My stops will be above 1385 and if you can place wider stops use the 1390 level. I will add on confirmed breaks of that upward sloping trendline and the 1370 level cash (1366 eminis).


Confirming evidence.

DOW Industrial 60mins:
This makes me very bearish. An A=C pattern off the low completed; an attempted breakout through resistance that failed; and last night we broke through the low end of that trendline with strength.

Russell 2000 60mins:
How do the midcaps look? Well the bounce off the low was weaker and also a clear ABC overlap. Price could not break above resistance.

And the European bounce was slapped firmly back down yesterday.

Eurostoxx Daily:
Strong candle that was completely filled yesterday. The upward sloping trendline has broken. The target for this move is down at the 61.8 fib at 2200 so still some way to go

Perhaps I am jumping the gun. I was bullish primarily because of the AUD and this has not broken any supports at all yet and the EUR held in well. I have to trade the stock setups in front of me however and use the currencies as secondary considerations for now.

My SPI range today: 4340 to 4380. Outlier levels 4325 and 4395/4400

Thanks Austin

Asia Setups

Morning All

Last night we saw consolidation and a clear short term range in the S&P500 after Tuesdays strong gains. I sold half my long position in the mid 80s and am looking for the 1395/1400 zone to get out of the rest as I said yesterday. Certainly there are a few things that are giving me concern. The DOW and the RUSSELL 60min charts both look like clear A=C patterns off the low. They sold off the heaviest last night after the targets were hit. However, to me there are some clear markers in the S&P500 and until these are broken, you just have to focus on this uptrend, especially after Tuesdays kick off. This level is 1370 in the cash index and price must hold above here. Below there I start getting bearish. Over the last few days, I have seen so many technicians who are looking for a top/Wave "2" high in the 1390/1395 region- when the crowd are all looking for the same thing, it v.v.rarely plays out.

To the Asian setups. I wanted to start with the Australian Dollar and this is one of the main reasons for my positive outlook currently. The 240min chart v.aptly highlights my thoughts:

AUD continuous futures 240mins:
We had a prolonged downtrend that ended with a base pattern/my 3 Indians ending pattern. Note the bullish divergences coming into the low and the heightened bearish sentiment given the interest rate cut cycle. Markets price that in! Now price is beginning a new short term uptrend. This is how markets transition. All the moving averages are up on this timeframe.

AUD June 60mins:
Zooming in more detail. As you can see here, price clearly continues to hold 1.0220/1.0240. I think we are now setup for a continued climb higher into 1.0450/1.05 and I would be long into that zone. There is a lot of disbelief and skepticism out there towards this currency right now and that will fuel an extended move higher.

To stocks:

XJO Daily:
Still stuck in a broad range but testing the top end of the range. Like you, I have no idea if this does breakout and thus I continue to focus on the short term and making money intraday.

One pattern that I was watching v.intensely and played out perfectly was BHP.

BHP Daily:
This was a classic bear trap as everyone was transfixed on $34/33.80. Sure enough we saw a false break and price immediately regathered the breakdown level. If the ASX200 is to breakout, it will be this stock that leads us. Lots of resistance points but we are not far off breaking a small downward trendline.

XJO 15mins:
These are the levels I am watching coming into today. Breaks of 4350 open up a retest of 4380 in coming days. Yesterday we saw v.little intraday movement but the fact we held onto gains was encouraging.

My SPI range today: 4345 to 4365. Outlier levels 4388/4390.

Core intraday ideas:
i) BUY dips to 4345/40 looking for a retest of the 60/65 level.
ii) SHORT scalp 4365. If price fails to sell here, you must get long and join the breakout targeting the high 80s/4390.


Hang Seng 60mins:
I still think this is a bullish setup in Hong Kong and self explanatory. Get into this short term uptrend targeting 21,000 firstly then as high as 21,600 if markets continue to climb this wall of worry which I think they will for now.

Whats my one concern? The Shanghai Composite which is coming into a great short zone as a Trader. Perhaps this is an ideal hedge for long positions.

A Shares 60mins:
Overhead resistance at 2500 which is a previous breakdown zone and the 61.8 Fibonacci level. We also have a small outlier level at 2520 which would possibly setup up a 3 peak/Indian pattern and subsequent bearish turn. I am seeing bearish momentum divergences on the lower time frames with each move higher which is an important backdrop for a bearish turn.

Thanks
Austin

The Power of Tuesdays

Pls see todays post here: http://marketletters.blogspot.com.au/2012/04/power-of-tuesdays.html

Got a great move yesterday. Have to now keep the ball rolling

Austin

Moving Day

Today's post can be found here: http://marketletters.blogspot.com.au/2012/04/moving-day.html

Just to re-emphasise my action plan today, here are my trading thoughts for the SPI:

My SPI range today: 4305 to 4335. Outlier levels 4298, 4290 and 4340.

My Core SPI day trading ideas today:

i)SHORT fade 4315 early with tight stops. This is right into yesterdays highs and decent overhead resistance. If we fail to sell from here then we know that a breakout back up to 4335 is on the cards so flip to long.

ii)BUY a breakout above 4315. Look for a strong 5min candle above this zone. Target 4330s.

iii)BUY a retest of 4300/4298. Any early weakness into this support zone should be bought with tight stops.

SPI 5mins:

SPI 15mins:

Monday Morning Setups

For the first time in a long while, selling into resistance in the S&P500 worked. On Friday night I put up a great short setup into the 1385 resistance zone and this played out: http://swingtradersedge.blogspot.com.au/2012/04/ides-of-march.html

Emini S&P500 Setup:
This was the sell zone that I showed on Friday

Emini S&P500 60mins:
And this is what we got.

Right here it is a tricky one. We are right into the low end of the range and decent supports at 1355/1360. A number of things make me think that we will actually hold in:
i) The S&P500 cash does not look like an impulse from its Friday high
ii) Underlying breadth was not particularly weak. In fact, the no of declining issues was 2298 vs a high of 2618 on the 10th April and 2500 on the 4th. Clearly we are now seeing divergences
iii) Currencies did not really sell on Friday night and are now retesting big supports which I think they hold.

Thus, I have got out of most of my short position. I do want to hold some but it just doesn't look right for now. Having said that, the weekly close on the S&P500 was bearish in my eyes and we closed BELOW my key 1375/1380 pivot. Especially given my thoughts re the month of March, I do very much think that this will be a bigger picture pullback. Thus I am rather torn between the short and long term perspectives. For now, look to see how we act in the 1355/1360 Emini support zone.

 S&P500 Weekly:

Asia could be on the cusp of a Wave 3 down type moment. No doubt there are very rare but they are low risk short setups. I am not seeing enough confirmation yet to have confidence with these but it is no doubt worth having in mind if Europe and the US keeps selling in the short term.

ASX200 60mins:

I highlight a potential ending diagonal on Thursday and looking for possible long trades: http://swingtradersedge.blogspot.com.au/2012/04/thursday-plan.html. This played out but price was stopped in its tracks by the 61.8 Fib. If we give up the gains seen on Friday, I think this would be bearish indeed.



SPI 60mins:

You can see a clear retest of the neckline on the SPI futures that failed. We had a very sharp sweep up to the 45 level that was beaten down straight away. A blow out lower high?

A Shares 60mins:

A sharp rally has taken this market back into a great overhead resistance zone. This could be a possible ABC flat? A small gap down this morning but not enough confirmation yet of a new trend lower. I would continue to look for low risk fades here.

The next 24/48hrs will be very interesting indeed.

Thanks

Austin

Exciting Developments

Morning All,

Some very exciting personal developments are taking place. My long term friend and trading colleague, Rich Sexton at http://marketletters.blogspot.com.au/, is launching a new Technical advisory service and I have been asked to come on board to head up the Asian equity market analysis. We see a real opportunity to offer first rate analysis and trading opportunities for Asian timezone traders.  Analysis for traders written by real traders.

The new site is still someway off being launched and initially we will be focused on wholesale clients.
Until the new site is up and running, I will be posting at the marketletters blog with my usual analysis and focus that you read here. I will get a redirect feature setup from this blog.

This is a great opportunity for myself. I have always thoroughly enjoyed writing and sharing my analysis as an extension of my personal trading. Taking this to a new level of professionalism is exactly the career trajectory I want to take.

I have received so much great feedback from my readers here since the blog started. Thus, this opportunity would not have been possible without you the audience. Thank you. This is not a goodbye but obviously just a recognition of the support you have given me.

Running a bit short of time now before the open. I will put up a post later with more detailed market analysis.
Thanks
Austin

The Ides of March Update

Beware the Ides of March! A quick glance on google informs me that the "Ides of March" refers to a date on the 15th March on which Julius Caesar was assassinated in 44BC. A turbulent event no doubt. In this post, I wanted to highlight the effect that the month of March has on the stock market. I think you will be amazed at the turbulence it provides. Back when I worked for Morgan Stanley, my old trading colleague used to stress to me the importance of this month as a turn window whether it be an important high or low. The examples I show here will no doubt illustrate this. The key is the underlying sentiment as the window approaches.

As I analyse the global indices today, I am amazed once more at the influence of this seasonal window. So many markets have turned right into this and I think the evidence is growing for a significant top.

Firstly, let me show over the last 10years how the S&P500 has traded around the month of March. Lots of charts here but really this should be quite easy to scan through.

S&P 500 Daily March 2000:
The big 2000 market top that ended the tech bubble. Where did the S&P500 peak? Right into March. A initial 200pt panic sell off ensued.

Where did this initial sell off bottom? Right into March 2001

March 2001:
March 2001 proved to be a strong intermediate low. A 250pt rally followed.

March 2002:
March 2002 topped out a countertrend rally. A destructive sell off followed from 1175 down to a panic low of 780!

The wave 2 low and bottom of the bear market was....right into March 2003

March 2003:

March 2004:
Although not topping out the entire Bull market, certainly March 2004 led to an intermediate high and a 6month sell off from 1160 to 1060 followed.

March 2005:
Again, another important intermediate high right into March 2005. The market sold off quite sharply from 1230 to 1140.

When did the first rumbles of the US housing bubble emerge? You guessed it, March 2007. This time was associated with a panic low in the S&P500.

March 2007:

March 2008:
In 2008 we were on the onset of a crisis. The market put in a intermediate low back then in March 2008 as BEAR STEARNS was bailed out by the FED. Bearish sentiment was at a fever pitch at this point- cue bear squueze.

March 2009:
And just when things seemed their worst, just when it seemed like the financial world was ending as we knew it, the market bottomed in March 2009.

March 2011:
The Japanese earthquake led to a market top in February thus a bit earlier than the window. However, after a 100pt sell off, sure enough we bottomed right into March.

And so here we are now in March 2012. Bullish sentiment levels are at extremes. Underlying momentum and volume despite the run up has been deterioarting for many months. Each new high has produced weakening breadth readings. And finally we have seen a small pullback. Will this produce something more meaningful? I am betting it will.

S&P500 2012:
The cash high was 2nd April (futures high was 27 March). The correction thus far has been roughly 60pts. If history is any guide, expect a whole lot more down the line.

A quick look at other markets shows interesting tops right into March as well. The sell offs look impulsive.

Eurostoxx Daily:

Hang Seng Daily:

Nikkei Daily:

BEWARE THE IDES OF MARCH.

Thursday Plan

This is an Asian Trading blog. I am based in Sydney and my main purpose for setting this up was to share Asian trading setups and technical analysis. I didn't see enough blogs doing this and thus I really wanted to make an impact and provide some quality analysis of the region.

No doubt at times it pays to look overseas. Sure one has to be careful to not get involved in "analysis paralysis" and I strongly believe that you have to really focus on your underlying trading vehicle and market. Just focusing on the bearish setups in Asia coming into the end of March proved this point as we preceded the highs of the US: http://swingtradersedge.blogspot.com.au/2012/03/asian-daily-setups.html. Look how that Nikkei trade played out! If I had been relying on the S&P500 to make some of my decisions, I would have really missed out on what is going on in Asia.

However, this morning I have been looking at a few Daily charts in Europe and US. The more and more I look, the more I think that we really have seen a meaningful high in the bigger picture. Now may not be the time to short this but any strength in the next 2 weeks I think will provide a great opportunity. Note that March very often produces a major top or bottom throughout history. This has kinda snuck in.

Eurostoxx Daily:
This is clearly an ABC pattern. We have now seen overlap and thus this really cant be an impulse off the October lows. This topped right into a resistance zone and the sell off from the high is looking increasingly impulsive.

DAX Daily:
Clearly the DAX has been a stronger market. However, I can also make the case for a complete ABC move off the low topping right into res. Once again, the top occurred right into March.

S&P500 Daily:
Last night we held that generic trendline I had drawn. However, bigger picture we are trading below my 1370 key pivot. This count was shown to me by my friend at marketletters. Note the momentum divergences into the high AND breadth was also seriously lagging. I am not saying be short here, but a bearish picture is emerging.

RUSSELL Daily:
The Russell is often know as the beta index. What I find interesting is that unlike the S&P500, this market did not break above its May highs but topped some way short. This is a bearish divergence. Furthermore, we have seen a clear FAILED breakout. These are my favourite trading patterns and imply genuine weakness.

So there are a few things to think over. As ever, timing is everything and I don't think being short after the first big sell off is the best trade. I hope to update you as this plays out.


To Australia. Yesterday was another frustrating one as a day trader. We traded in a 15pt range for most of the day (despite a big sell off in the US). We then finally broke down in the last 15minutes of trade right into my target area.

SPI 60mins:

I could make a case for somekind of ending wedge pattern here. Clearly we are not breaking down impulsively like other markets for now and we are into a decent support area. Potential short term bounce coming but wait for confirmation.

XJO 15mins:

My SPI range: 4240 to 4280. Outlier level 4300.

My SPI day trading plan: We are indicated around 4260 on the open. This is right in the middle of the recent range and thus I don't have an early obvious trade. I will be looking to BUY 4245/4240 if we see an initial sell off and I will be looking to short fade 4272/4275 with tight stops. Note that there is also a possible outlier res level at 4280. Any genuine strength above 4275 (yesterdays high) opens up a potential move back into 4300 and higher. This would trigger that ending wedge pattern above. The trend is still down obviously so waiting for price to confirm is key.

Thanks
Austin