Market Update

This post was originally written on Thursday May 24th: http://marketletters.blogspot.com.au/2012/05/market-update.html.


In Tuesdays post, I called for a tradeable low and looking to buy retests of 1300/1290: http://marketletters.blogspot.com.au/2012/05/oversold-bounce-time.html. This played out to a small degree yesterday. We now wait to see if the market can take out some minor overhead resistance levels and pick up some steam. In short:

• The S&P500 tested and HELD the key trendline and 1290/1300 support zone. A bullish hammer was left on the Daily chart and higher lows on the smaller timeframes. I believe this is part of a bigger bounce sequence that could lead to a retest of 1330/1350 in time.
• Note that type of swings usually begin with simple short covering after the market fails to make a new low. This then triggers more buying as we tick higher and higher. 
• Key risk for bounce scenario is a break of 1290 and this would be the trigger to re-initiate shorts once more across risk assets. I would actually be very concerned if this level dropped.
• Central to my oversold bounce call is the USD. Both AUD and EUR remain at key buy zones/short cover zones. However, for now we are just not seeing decent bullish confirmation. If we are to rally, these pairs must move higher and NOW. I show a potential short term breakout pattern in AUD below.
• Asia continues to be a laggard as anticipated. Today, XJO tested Fridays low as did the Hang Seng. Both made higher lows. These could be short term double bottom patterns but obviously we will need a strong offshore lead for these to play out (joys of this timezone).
• Any decent bounce in the upcoming fortnight in S&P500/DAX/EUR should be used to re-iniate big picture shorts in Asia. It is tough to try and pin point a level for now but simply we will need both price and time before initiating shorts. 

S&P500 Daily:
Retest of key trendline that holds. Bullish Daily reversal candle. Need to see breaks of 1325 to open up a bigger bounce. 

Tactical View: Looking for continued bounce up to 1340/1350.

S&P500 Daily ii:
Note I do not use Bollinger Bands in my own trading. My point here is that a buy signal has been triggered now that price has closed back into the bands after a climatic overthrow. I have noted a few examples on this chart in the past year or so. Obviously this could be an "outlier" event but the essential point is that we hit a price extreme, and buyers are now stepping in.

AUD June 15mins:
This is the key short term setup I am watching tonight. If risk is going to catch a bid, AUD needs to break out of this basing pattern. Last nights low once again tagged the lower end of the trendchannel line. We now need to see price recapture and hold 9770/9780 futures.

ASIA

XJO Daily:
Certainly not enough evidence to call a low yet. The trend is down. Price has tagged the first major target zone but the first rally attempt was slapped down yesterday with more bearish follow through today. I don't have a trade here other than to look for good bounces to re-initiate shorts.

Hang Seng 60mins:
Like Australia, little confirmation of a low or turn yet. This trend down has been very powerful and there is no need to fight this. Note we have hit an interesting relationship between the initial waves down. Need to see bullish follow through to confirm.

A Shares 60mins:
In no-mans land for now

Thanks
Austin

Updated Market Outlook

Morning All

Well the last few weeks have been truly savage. It just goes to show how fragile this market really is given that a whole years gains can come undone in a matter of weeks. One by one,topping patterns have formed with the US Equity market the last to crack.

With the SP500 breaking and closing decisively below 1340,we have now entered a new cycle I believe that will continue for weeks and possibly even months. All we can do is play the levels and take it one step at a time, but certainly it appears that caution is the name of the game for the foreseeable future. At some points, the market becomes a self-fulfilling prophecy and it appears the growing chorus of bearishness has decisively changed the character of this market. Of course there will be bounces and vicious squeezes. The simple fact that I am writing this in such a tone implies we might be on the cusp of a bounce now. That is the nature of bear markets. However, the breaks across markets look impulsive and the start of new trends lower across risk assets.

• S&P500 oversold bounce zone at 1280/1290. Volume and breadth have both reached potential short term panic extremes. This bounce zone is best left for short term traders. Look for potential Tuesday/Wednesday turn. The bigger money will be made sitting in this new trend down. Key risk is now a close back above 1340 for bears. 
• NASDAQ100 entering previous 2012 breakout zone. This should be formidable support on the first re-test. 
• EUR entering previous lows at 1.26/1.27 and risk of bounce here. AUD at 98c support level but needs to do more work before a confirmed turn DXY into overhead resistance. 
• Confirmed bearish breakdowns across Asian equities imply further weakness in weeks and months ahead. There is also a risk of an oversold bounce but this should provide a good opportunity to re-establish core shorts. The swiftness of the current sell off shows that this market should not be massaged too much. Holding core shorts and themes is key. 
• Australia is the most bearish market in region. That market is a core short with targets down to 3800. Look to play bounces out of S&P500 or potentially HSI.  
• The DAX failed to bounce out of key support zone of 6350/6400. This implies genuine weakness.

S&P500 Weekly:

A bearish reversal candle through the key support zone and previous breakout level. 

S&P500 Daily:

Strategic View: The bearish close below 1360/1340 support zone has shifted the trend to down. This opens up a deeper move to1200/1220 in coming months. Follow the new trend down.

Tactical View: Oversold bounce likely in coming days. This is for short term traders only. Position traders and investors should be using any bounce to establish core shorts into 1320/1340. Re-establish shorts if 1280 drops.

1280/1290 should be a decent bounce zone. This is the 38.2 Fibonacci retracement off the October 2011 lows, and a key trendline. Key is waiting for confirmation first such as a bullish reversal candle or a base pattern on the lower time frames.The 200 day exponential average was overthrown but these are not always exact hits (note Nov 2011).

NASDAQ 100 Daily:

Adding weight to a potential short term bounce scenario is the NASDAQ100 which has sold off into the previous breakout zone. 2400/2450 will prove a formidable support zone on first test.  

ASIA

Australia Weekly:

Very bearish breakdown candle through the upward trendline and ascending triangle. This opens up a move down to 3800 key pivot level and even a possible retest of the March 2009 lows. One level at a time. 

Australia Daily:

Strategic View: Bearish and following trend lower to first target of 3800/3850. The fact that this market has underperformed all of its global peers since 2009 lows implies genuine weakness indeed. This is the laggard of the region and should be the key short play.

Tactical View: Short term bounce possible out of 4000/4050. However, this is the weakest market in the region so prefer to play other markets for a risk bounce. Focus on re-shorting into the downtrend.

Hang Seng Weekly:

Breakdown through upward flag. Opens up a retest of the key pivot level at 16,000.

Hang Seng Daily:

Strategic View: I was cautious on a break of upward trendline and now bearish on the clear breakdown through support.

Tactical view: Oversold into support zone therefore cover shorts. Waiting for bullish reversal candles to play a short term risk bounce. Look to re-establish shorts at 19,500/20,000. A break above 20,000 would be key risk for bears. 

A Shares Weekly:

Further confirmation of triangle pattern. Looking for breakdown through low end of triangle for potential wave 5.

A Shares Daily:

Strategic View: Bearish and confirmed reversal at top end of range.

Tactical view: Remains a core short and happy to ride trend lower. Obvious bearish repercussions for Australia.

KOPSI Weekly:

Very bearish reversal and breakdown through flag/pennant pattern. This looks to be a sharp C wave down with targets into 1500/1550.

KOSPI Daily:

Strategic View: Bearish on breakdown through neckline and upward trendline.

Tactical view: Cover shorts here. No need to catch a falling knife in this market for now, especially as it is one of the most volatile in the region. Look to re-establish shorts in time .

Nikkei Daily:

Strategic View: Bearish on breakdown through support zone of 9000/9100. Initial targets of 8000 but more meaningful target at 7000.

Tactical View: I was looking for a potential bullish  turning point and this was clearly wrong. Short bounces back into overhead resistance.

CURRENCIES

AUD Daily:

Tactical view: Looking to get long in 97/98c for a solid bounce back into parity. This could potentially be the low end of a C wave as part of a broader triangle. However, note it is very unlikely that AUD will hold up in a risk-off environment in months ahead therefore triangle interpretation in jeopardy. 

Thanks

Austin

Mixed Signals

Morning All

Well I really thought the rally would pick up steam overnight. I went to bed soon after the US cash open and saw lots of sell stops going off only for price to snap right back. Often that is indicative of a false breakdown and good turning point. However, price has once again failed to kick on and we have drifted lower forming a short term range. I see mixed signals across markets.

• S&P500 continues to hold the low end of the support range. The cash market made a lower low overnight but recovered strongly. Price is in a range from 1345 to 1365. Use breakouts above the latter level to get long. Emini S&P500 1340 is now the last stand for bulls.
• Australia has come into my first major target zone and I believe it is time to get out of shorts. Short term traders could be looking for bullish turning points today out of 4250/60, SPI 4250/40.
• Hang Seng has broken my daily trendline but we have seen no lower low thus far. Difficult to make a forecast here as price is still in the low end of the Daily range
• The A Shares reversed yesterday right out of the top end of the range. There is a potential ending wedge pattern that was triggered yesterday. 2500 is key support
• The KOPSI is testing major supports from 1925 to 1950.
• EUR and AUD both continue to grind lower but there are bullish momentum divergences forming and some solid supports here. Sentiment is v.v.bearish. Potential bear traps forming.

In sum, I do think Bulls are successfully defending the low end of the range in the S&P500 and the DAX. We need to see follow through which has to come and NOW. Asia is a mixed bag but I am leaning bullish in some markets in the short term such as Australia and the Nikkei just for tactical short term buys.

S&P500 Daily:
Another reversal candle out of support

S&P500 60mins:
If this is a A=C and swing low, price needs to move higher and now. Breaks of 1340 tonight open up 1330 and lower.

Emini S&P500 60mins:
Short term range from 1340/45 to 1360/65

ASIA

Australia
XJO Daily:
Multiple support here

XJO 60mins:

AUD 60mins:
Tagged the 1.00 level in futures last night. See yesterdays post for the significance of this on the weekly chart. Price needs to recapture that line to trigger long traders for me.

CHINA

HSI Daily:
Daily trendline broke yesterday which concerns me

HSI 60mins:
Price broke through my support zone yesterday. However, no lower lows thus unclear here to me.

A Shares Daily:
Reversal at the top end of the range. This was my strategic view.

A Shares 60mins:
Break of potential wedge pattern. Note 3 push higher on 3 lower peaks on the momentum indicator. 2500 is key support.

KOSPI Daily:
Multiple layers of support coming in at 1925 to 1950. Needs to hold otherwise this could be a genuine breakdown trade.

Thanks
Austin

Got The Bounce- Now What?

Good Afternoon All,

Sorry for the late post today. Yesterday I was looking for a low risk buy trade into the panic and key support levels after a big Monday morning gap down: http://marketletters.blogspot.com.au/2012/05/monday-morning-panic-buy.html. As anticipated, we held in but the real move only began when the Europeans came in to drive the market higher, and a bear squeeze ensued.

What I wanted to do in this post was try and give a more tactical posture as to where I think we are and the trading scenarios I am looking at. I am aware at times (like yesterday) that I am short term in my view when I see a short term trade lining up. For longer term traders and position traders, this may be confusing somewhat in the bigger picture. I want to attempt to show trading setups and scenarios so that traders of different timeframes can make informed decisions.

US

S&P500 Daily
Strategic View: Bullish and following the uptrend. Targets 1475/1500. Only a daily close below 1340 would shift my stance to bearish opening up targets of 1290/1300.

Tactical Posture: Still looking to buy this sell off into 1360/1350 (cash). Stops below 1340.

As can be seen here, price is retesting the previous breakout zone and former resistance at 1340 to 1360. This is a low risk BUY area. The Daily trend remains up with all moving averages positive. I think we are in a consolidation/triangle type pattern. Last nights low clipped this pitchfork to a tee.

S&P500 60mins:
Short term view: Price is trading in the low end of the range. 1358/1360 obviously key support then 1350. The Eminis looked to have put in a climatic low at A=C whilst the cash market has put in a HIGHER low thus far. This is bullish if we can hold last nights cash low.

The short term trend is down and thus longer term traders need to look for price to regain 1385/1390 to confirm a new push higher and a confirmed low.

Intraday: we have seen a good rally back into the short term downtrend. Look for good resistance at 1375/1380 and potential shorts. If we fail to sell, look to join this move higher.

Emini S&P500 15mins:
Short term trend remains down. Looking for potential short trades at 1370/1375, looking to buy a retest of 1350/1355. A recapture of 1385 confirms a meaningful bigger picture low.

EUROPE

DAX Daily:
Strategic view: Bullish and following the uptrend. My initial view of a low at 6500 was incorrect. However, my 6400 outlier level was clipped last night and price closed ABOVE 6500. A daily close below 6500/6400 would shift me to cautious. Looking for a retest of previous 2012 highs at 7200.

Tactical posture: Continue to favour buying in this zone, stops below 6400 (note 38.2 Fib comes in at 6350).

Yesterday we saw a bullish reversal candle and close back above 6500. I had 6400/6500 as a key inflection point and for now we are holding in....just.

Adding weight to this scenario is the Eurostoxx:

Eurostoxx Daily:
Bullish Engulfing candle just shy of the 61.8 fib retrace.

Eurostoxx 60mins:
I can count a complete 5 wave decline from the March highs. Yesterdays breakdown and strong recovery is indicative of a potential panic low. There really has been no decent bounce in terms of price or time since the March high and thus I think we are completing/have completed an impulsive down. This implies a good rally in price and time to come lasting at least a month. However, certainly need a lot more confirmation first for position traders.

Short term: Support 2240/2250, Resistance 2300/2350. Only strong breakouts ABOVE 2350 would confirm the count below.

Eurostoxx 60mins ii:
Momentum divergences coming into the low. Price recovered strongly after a initial panic open.

ASIA

Australia Daily:
Strategic view: Bearish to Neutral. We remain in a solid range and clearly failed at the top end with a Double top trade forming. A close back above 4400 would shift my stance to more bullish.

Tactical posture: looking for a bounce in coming days to initiate short trades against 4400 resistance. This is a great market to pair short vs long other regions.

Climatic reversal out of resistance. However, we have come into good supports in the short term with the 200day moving average and upward trendline. Trend remains up. Range from 4250/4300 to 4400/4450.

XJO 60mins:
Short term view: price is just holding the previous breakout zone and support area at 4320/4300. No confirmation of a meaningful low. Looking to short bounces back into the downtrend until a base pattern/bullish reversal pattern ensues.

Hang Seng Daily:
Strategic view: Bullish and following the uptrend. Concern on a break of the upward sloping trendline. A Daily close below 20,000 would be bearish and confirm onset of a potential C wave down.

Tactical posture: A potential triangle/consolidation pattern continues to play out. Looking for a B wave retest of previous highs.

Price bottomed yesterday right on the upward sloping trendline. If we can hold, look for a continued grind higher to retest previous highs. This scenario is right in the balance.

Hang Seng 60mins:
Short term view: 20,400/20,500 remains key support. As long as this holds, look for potential gap fill targets into 20900/21000. Only a close back above 21,100 would confirm a continued move higher into the (B) wave target.

A Shares Daily:
Strategic view: Bearish to Neutral. Trading at the top end of the recent range. A Daily close above 2600/2650 would be bullish and invalidate this view (see A Shares Daily ii).

Tactical posture: Looking for short setups into this zone.

A Shares Daily ii:
Potential triangle pattern. A break above 2600/2650 invalidates this view. A low risk short zone up here.

Nikkei Daily:
Strategic view: A tactical short term bullish view. Bigger picture unclear and neutral.

Tactical posture: Looking for a short term swing trading BUY into this support zone and previous breakout level. Need to see bullish reversal candles to confirm the setup. No signal for now.

Sensex Daily:
Strategic view: Neutral but BULLISH ON A DAILY CLOSE ABOVE 17,000

Tactical posture: looking to get long on any retests of yesterdays lows.

This is a potential bear trap and A=C support trade. Stops have to be placed under yesterdays lows.

Thanks. Would appreciate any feedback on this format
Austin

Monday Morning Panic=BUY?

Morning All

Well I had a whole host of things I wanted to write this morning but I will throw most of this out of the window having seen where the Futures have opened. There is no point dwelling on what HAS happened, but rather an action plan for today and going forth. This post will focus on the shorter term outlook. I will update Daily scenarios in due course.

It all looks very ugly out there. However, these are the exact times to keep a cool head and be planned. It is also often the time to fade the crowd and do the uncomfortable thing. Looking through the charts today, I actually think we hold in here but I would be surprised to see a genuine bid until the Europeans and US step in. Asian traders will really need to be patient and perhaps sit on the sidelines or take low risk long trades with tight stops.

Emini S&P500
We have gapped down over 10handles right into the A=C target of 1345. If I see some bullish reversal candles, I will look to get LONG. A break back above 1355 is needed for confirmation. If this level doesnt hold then look for support in low 40s. I will not be shorting down here.

EUR 60mins:
Gapped down right into support BUT hanging on a thread. Possible bear trap but only if we see real bullish reversal candles.

Australia

SPI 60mins:
These are the support levels I have identified today. I think the bigger zone of support will be 4300/4290 and I will look for confirmation down there to get long. Note a minor support level at 4322 which is the 61.8 Fibonacci retracement.

XJO 60mins:
Looking like a gap down into the previous breakout zone. Keep this chart on your screens today. Should be a formidable buy zone after 3 days of weakness. 

XJO Daily:
Note that 200day moving average comes in today around 4300.  In the bigger picture, this double top pattern concerns me especially given the fact we topped right on the day of the 50bps cut- a bullish climatic event.

Japan

Nikkei Daily:
The Nikkei will be back online today. They will certainly be hit with a bit of a shock. Note the 2 major target levels I have labelled here. Once again, waiting for confirmation to get long is the right play. No need to fight this breakdown for now.

China 

HSI 60mins:

A-Shares 60mins:
Still in a wedge like pattern with 2500/2480 key support. My target range was not hit but note the res level on the Daily chart underneath. 

A Shares- Daily:

Bottom line, there is a lot of panic out there given the European headlines and markets are coming into some solid supports. I do think we will hold in but waiting for confirmation is key. No need to jump the gun. If this keeps falling and spiralling out of control- fine, let it do so. However, the best risk/reward shorts are not in this zone and if you are going to join this breakdown, you have to keep it nimble or have very wide stops. In the bigger picture, I could certainly make a bearish scenario but lets focus on the here and now.