Wednesday, 4 April 2012

Wednesday Plan

Morning All,

A mixed picture as I look across markets this morning. The Emini S&P500 sold off sharply late in the session due to FOMC comments, but the key support at 1400 was held and there was a sharp snapback. Clearly that market is in a range now from 1385 to 1420 and we seem to be bumping along in somekind of wedge like pattern. As long as 1400/1397 holds I remain bullish and would continue to buy dips. Breaks of this open up a move back down to the low end of the range to 1380/1385. Trade the levels.

Currencies are giving me real cause for concern. Firstly to the AUD. Yesterday, we saw an impulsive sell off after the rates decision as it looks increasingly likely there are more cuts ahead. AUD is now testing key support for a 3rd time and in my experience, these 3rd tests are often the prelude to a breakdown. More importantly, each move lower is impulsive whereas each bounce thus far remains corrective i.e. this is a clear downtrend.

AUD June 60mins:
The original double bottom trade I posted on Friday last week worked BUT the bounce off the low has clearly not been impulsive and a lower high has been made bang on an A=C target. Now we are retesting supports and I would not be surprised if we see a genuine break here. Simply, look for breakdown trades below this level. My friend at marketletters made a very good comment that the whole move off the top is a overlapping mess and thus most people will think this is not a genuine move lower. Well these are probably the ideal conditions for a genuine breakdown. Pls read:

EUR 60mins:
I posted this chart a while ago and I believe we have now seen confirmation of a failed breakout. The catalyst last night was these FOMC comments. Irrespective, a clear base pattern was formed and price failed to move higher. This is a bull trap. Last nights sell off was strong and there has been no bounce thus far. You cant manipulate currencies as easy as stocks. I think this is the prelude to a new trend lower back down to those recent lows. I believe this is bearish for other risk assets.

A Shares 60mins:
I have not updated my A shares 60min chart here for sometime. This has been one of my best calls for a while. This market is still in a clear downtrend with strong momentum. Sure there will be a bounce at some point but these should be sold. Australia's well being is completely linked to this country and market right?

And so to Australia. Today is a difficult one. There is a Head and Shoulders pattern that I am sure every trader will be looking at. I hate these patterns as so many times I see them fail to play out and actually lead to great bear trap setups. All you can do is be prepared for this if the market fails to sell.

I just want to run through the charts to try to paint a clearer picture.

XJO Daily:
Breakout above the 200day ma. We are now retesting the previous breakout zone and this ma which is natural.

XJO 60mins:
4310 to 4320 should prove good support early today as per the chart below.

SPI 15mins:
However, we are indicated at 4325 early and thus below the neckline of this H+S pattern below. Thus, this pattern will be triggered first thing. The target would be down to 4270 and the potential gap fill.

Thus, I think we could see somekind of attempted breakdown early that actually holds in. I think the better trade is to short a bounce into that neckline after the initial foray is over.

My SPI range today: 4305 to 4340. Outlier levels 4275 and 4355.

My SPI trading plan: I will be looking to BUY 4320 early with tight stops. This should be a good area of support for the cash market and I think that there is the potential for a bear trap early given this H+S pattern. Obviously if I see bearish red candles on the open, I will not hang around and get short targeting 4305/4300. My targets for any bounce out of the 20s is into 35/40 where I will look for short fade trades and more aggressive shorts.

Trade Ideas:
1) BUY 4320/25 with stops at 4316/17. Buy the weakness early into support and if it fails to hold, then we are likely to be looking at a genuine move lower. I will cut and reverse if this doesn't work, looking for 4305/4300.

2) SHORT 4335/4340. Stops above 4340. This should be solid overhead resistance and a low risk short entry.

3) BUY scalps at 4300/4305 for tight trades only. If we fail to hold here than short once more targeting 4270/80.