Thursday, 5 April 2012

Happy Easter All

Morning All

Yesterday was a classic example of why trading the Australian stock market is just so difficult. We had an obvious breakdown through a neckline of a Head and Shoulders pattern and clear support. However, this led to a classic short term bear trap. I wrote about this my post as I expected as much: The market failed to breakdown and we grinded higher throughout the day, closing on the highs. And then as soon as the day session is closed, prices really start to sell off and we are now indicated below yesterdays lows! Tough. As much as I hate to say it, we are still very much pawns of our overseas brethren. That EUR short setup I talked about sparked all last nights weakness.

Thus you really have to make a choice as an index trader in this timezone. You either day trade and close all positions out at the end of the day. This way you cant be beaten up by offshore moves and you can comfortably turn off your screens at the end of the day. You are not going to catch the big chunky overnight moves and much of the trend, but equally your risk is quantified. The alternative is to swing trade the index and this will obviously require much wider stops. Your trade idea may be spot on but your overnight position will be at the mercy of offshore moves. You have to accept this. There will be many times when you will be stopped out unfairly or unexpectedly. Its tough. It has taken me a while to come to a realisation of what works for me in this timezone and I believe many traders need to undergo this process.

And so to today's trading. Obviously it is Easter Weekend and this will be the last trading session until Tuesday morning with a nice non-farm payrolls figure coming on Friday. I think it goes without saying that most traders will be shutting up shop and closing positions with this kind of headline risk. Thus, given that the weak overnight lead, it is very possible that we see some genuine selling today in Australia with "investors" not wanting to make any big bets here. This is just me talking out loud here so trade what you see.

SPI 15mins:
This is the fake breakdown I talked about yesterday. Very frustrating for most. I show this just as an example as I have seen this pattern time and time again. Its why I blogged about it yesterday pre open.

SPI 15mins:
More importantly, now that this "false breakdown" is over, it actually opens up the potential for a genuine move lower! Bulls who have bought into this zone repeatedly are now underwater and key short term supports have now dropped. The targets are 4300/4305 but more importantly down at 4270/80. That does look like one serious topping pattern to me.

XJO 60mins:
We are indicated at 4312 in the futures which is around 4300 for the cash market. Thus we are set to open BELOW that key breakout zone I talked about. The key will be gauging the early morning move. Any failure to bounce is bearish indeed. Note the 38.2 fib retracement from the high to recent low comes in at 4288 as a small outlier.

My SPI Range today: 4280 to 4325. Outlier levels 4330

My SPI day trading plan: Yesterdays low was 4318 and we are indicated below this at 4312. Straight from the open I would be looking to short against this level with stops above 4325. An ideal short level would be 4320 I believe. The target for any initial short is down to 4305/4300 and I will cover into there. There is a confluence of supports at 4300/4305 and I would not be surprised if we held in there for a while. Any failure to bounce out of there and I will short for a breakdown trade, targeting my 4275/4280 levels cited. Given it is the day before Easter, if we don't break 4300 than this could be a fizzler in the afternoon.

The key as per yesterday is gauging the early morning strength. Yesterday the cash market bottomed straight after the open and there were back to back bullish candles on the 5min charts. You have to heed this and don't fight it. Similarly today, if we fail to sell early than I will heed the markets message.

As a side note, the 200day moving average for the cash market comes in at 4293 today. Also every man and his dog will be watching BHP at $34. Just some pointers for you.

XJO Daily:
Breakout and retest. Just keep this on your mind. How many times has this been hit!!!