Monday, 16 January 2012

More Evidence of Bearish Turn Ahead

Morning All,

There are headlines everywhere this weekend in regards to the European downgrades. I have no desire to get into commentary or a protracted debate regarding the ongoing European situation. This is a technical trading blog and it is the use of the technical picture and price action that drives my trading edge. Since the middle of last week I talked about the tiring trend, the waning momentum and the high possibility of a breakdown: Then the "news" comes. These events always confirm to me the value of what I do and what I study. We cannot predict the catalysts or when events will arise, but we can continue to study the underlying conditions and anticipate the markets next likely direction.

Of course, I do read various economic reports and analysis, but they have almost 0 value in my trading. The one commentator who is on the money and has been consistent throughout this whole crisis is John Maudlin. I do thoroughly recommend subscribing to his free newsletter which is always engaging and to the point.

The S&P500 Eminis fell apart on Friday evening breaking through the 1280 level on rumours of a imminent downgrade of European sovereigns. However, the market held in surprisingly well and it looks like all those who shorted the break of 1280 were forced to cover into the close. It is interesting that the first "break" always seems to be a false one, as those who missed out on the uptrend are eager to pile in. Certainly I did not think we would hold in so well especially given the fact the US markets are closed on Monday for Martin Luther King Day. However, I really don't see anything to change my bearish view in the bigger picture. I will continue to short 1290s with stops above 1310. This may be an ABC off the top and thus a new high is coming, but I view any new high as marginal at best.

S&P500 Eminis 15mins:
A series of bullish hammers in the 1275/1280 region resulting in a late day squeeze. I do view this bounce as yet another opportunity to short if you can use stops above 1305. Shorter term traders may want to wait for a retest of 1295 i.e. the previous highs.

Australia will be the first market to react to the official S&P downgrade given the announcement came after hours. I'm sure many commentators will say that the market has "factored this in" as the downgrade was well flagged. Perhaps, but this will do nothing to restore confidence with the ongoing European saga and it sets in motion a whole host of problems in regards to wholesale funding, the bailout package, yields etc etc. The knock on effects are huge.

I have been calling this whole pattern in Australia as part of a Wave 4 triangle with a breakdown to come into 3800 and lower: The recent price action continues to confirm this to me as price has struggled to breakout in this 4200 region (cash).

ASX200 Daily:

ASX200 60mins:
Price is testing some very strong resistance here at 4200 and 4220. I believe we are in the final legs of a C wave with a breakdown to come.

My SPI futures range today: 4125 to 4170. Outlier levels 4180 and 4190

My plan today: the good risk/reward trade remains getting short up here with stops above 4200. I really don't know if today is the breakdown day given the way the Eminis and AUD recovered on Friday night. Key supports come in at 4160 and 4150. Any breaks below there should open up a lot of selling.

Thus, I will look to fade any bounce into the 70s with stops above 4180. If we see no bounce from the open, and if there are no buyers at 4155/50, I will look to join the momentum and get short with the appropriate stops looking for 4125 and possibly lower. Potential long scalps at 4150 and 4125 if the order books supports.

SPI March 15mins:
A clear wedge into resistance. 4160 and 4150 are key supports today.