Friday, 20 April 2012

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: 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