Wednesday, 7 March 2012

Yup, We Were There

And just like that, it all comes undone. I have been theorising for a long while that this market was in jeopardy with low momentum, weakening breadth, wedge like patterns everywhere and price challenging key resistance levels. Tops are a process. We never know the exact time they will play out and all we can do as traders is anticipate and wait for the market to confirm. That time is very much now. Its just amazing how quickly everything can be undone as the crowd gets caught on the wrong side. There is so much leverage in the system and this will swiftly unravel. I imagine it will not be long before all of this years gains are swiftly undone. That's what climatic patterns do. That's what happens when you generate a bubble.

My trading colleague said to me that you just have to make your year when you have conviction. True that. However, equally as a trader I realise that when everything looks awful and the crowd is fleeing straight out of a market high, its probably time to cover. And thus, I have covered the bulk of my short positions in the low 1340s overnight. There is still more downside but it has been a great few days and this is why I go early into key levels to get a free look. My initial entries and setups were all shown here: AND

Emini S&P500 60mins:
This is the first major target I believe. Looking for 1330 to 1335. Outlier level at 1327 which is the 61.8 Fib retrace off the last major low.

SP500 Cash 60mins:
A potential bigger picture target comes in at 1300 to 1315. I believe this is the first major stop for this correction. When we get down there, we can evaluate how big or meaningful this correction really is.

SP500 Cash Daily:
The simplest of charts. I must have shown this chart a few hundred times over the past fortnight. Double top/res zone. Well it has played out and yesterdays strong candle is indicative of a significant turning point.

So in sum, I am looking for a bit more weakness in the next 24hrs down to 1330/1335. The S&P500 closed on its lows and made a new momentum low. Breadth was very bearish with almsot 2800 declining issues on the NYSE and easily a 90% down day. Thus, I expect some follow through at a minimum. However, for me this is not the time to be putting on new shorts but getting out into extreme weakness. I will be looking for rallies back into the moving averages and resistance levels around 1355/1360 to re-iniate once more.

AUD Futures 60mins:
This is the one market that has guided me very well. Clear spillover out of res, clear failed bounce into 1.08 and my Head and Shoulders top was triggered once 1.07 dropped. We are now in a clear 3rd wave down I believe with a new momentum low in place. Short rallies into res.

To Australia. Yesterday was a dream day for the bears once that 4250 level dropped. I stressed the importance of this level over and over again. I took a little screenshot at the end of the day of the 5min chart. Once we failed to break above 4250 early, it was a trend down day pure and simple with many chances to get into the new downtrend.

SPI 5mins 6th March

The bigger picture in Australia is equally as bearish.

ASX200 Daily:
That upward sloping trendline will be broken today. We have a lower high in place, and a clear breakdown through a multi month consolidation pattern is potentially playing out. The target is right down at 3850 but I don't want to get too ahead of myself just yet.

ASX Daily ii
No counts, just a simple consolidation pattern that will be broken today I believe.

SPI day trading range: 4110 to 4180. Outlier levels 4100 and 4180, 4200.

My SPI day trading plan: We are indicated at 4151 given the overnight move. This is a gap down of some 60pts. As per the chart below, we are now entering into previous lows at 4140 and 4110 which should provide some support initially. Thus, I will be very careful getting too bearish early. My plan is to wait for the morning range to be established. If we gap down and hold, I will look to short a bounce back into the 5min moving averages up at 4170 to 4180. If 4140s fail to hold, I will look to short at market targeting 4110. Down in the low 4100s I will be looking for long scalp trades with tight stops. Bottom line, in these kind of gap down days, don't let emotion get too you and be prepared for potential squeezes if we don't sell early.

SPI 15mins: