Thursday, 1 March 2012

Sometimes It Aligns

Morning All,

Yesterday was one of those magical moments which rarely ever materialise. Every setup I had on my screens played out, with market after market "testing" their previous highs and double top zones. Then it was a matter of pop and drop and we got it. I talked about these zones in yesterdays post: ASX200, HANG SENG, DAX, AUD and EUR- one by one these markets rallied into their previous highs and then failed, showing a significant reversal.

The Emini S&P500 popped to 1377 post the LTRO announcement and then sold off, gaining momentum to the close. On the 28th February I wrote:

"A ideal setup (Emini S&P500) would be a push above 1370 to 1375/1380 and then a sharp reversal back down below 1370. This would be a short signal for me".

This is what we got yesterday and I added to my shorts in the mid 70s after the reversal.

Emini S&P500 60mins:
Major bearish reversal candle out of resistance. Clear failed breakout above 1370.

As per the chart above, last nights sell off now takes us into the first supports. One could even argue that this is a ABC type sell off from last nights high and thus a low is in. I have covered some of my shorts at 1360 BUT I do think there is a lot more under the hood for a deeper correction and thus I need to hold some shorts. Let me expand:

Last night volume was the best I have seen in ages with 1.1bln trading on the NYSE. Almost 800k of this was Declining volume. Advancing issues popped to 2100 on the open, making another lower high despite price making higher highs, and then reversed to close at 1018. This is bearish indeed. These are the exact breadth readings you want to see at major turning points.

And now for the price action.

SP500 Daily Cash:
Reversal Candle out of the Double top zone. Early days obviously but this is the first initial signs of confirmation.

SP500 Weekly:
I showed this chart to a colleague yesterday which once again emphasises the relevance of this 1370 level.

SP500 60mins:
And when we drop down a timeframe, I can see the final subdivisions of this impulse. I talked about the back to back Wave 4 patterns which implied one final push and I think we got that last night. Again, momentum is not following through to the upside despite price making a higher high. A convincing break below this 1365/1370 support would confirm a failed move higher and open up a move right back down to 1340 and possibly lower.

So for now, we have sold off into the first minor zone of supports. It is important to not get too ahead of oneself in these situations as the first dip in a uptrend usually gets bought. We have a number of supports coming in from 1350 to 1357. As per above, I have covered some of my shorts and will look to re-initiate on any bounces back up to 1370. I will hold a core position for sure given the initial confirmations and given the magnitude of this zone and because I am looking for a bigger swing lower from here. No doubt, I recognise that the lower risk play right here for short term traders is to look for buy setups into the uptrend with stops below 1350. All yours.

To Australia today. Yesterday I called for one more push up to the previous XJO cash highs as long as 4250 held, and we got this. The SPI popped through my 4300/4310 level before getting dumped into the close. Lots of month end shenanigans going on here no doubt. The 4250/4255 level will be key once again today and I can only call a new trend lower once/if this drops.

XJO 60mins:
Rallied right into the 4315/4320 target and then sold off into the close. No doubt a nice bit of month end window dressing going on here but don't worry, that stuff doesn't get investigated.

My SPI range today: 4250 to 4305. Outlier levels 4315/20 and 4230

MY SPI plan today: We are indicated at 4266 this morning given the reversal last night in the US. This takes us almost right back to yesterdays lows! I do think we have seen a short term high in the SPI and thus the highest probability trade is to look for shorts on a retest of 4295/4300 with tight stops. A move back up to 4315/4320 would be a more aggressive short. 4250 remains the key support level and I will be covering any shorts into here again and looking for scalp longs. If we cant bounce meaningfully out of 4250 then look for breakdown trades to 4230 and then ultimately 4200 in coming days.

SPI 15mins:
Pop above 4300 and then reversal. A break below 4250 would confirm a more meaningful high.