Thursday, 12 April 2012

The Ides of March Update

Beware the Ides of March! A quick glance on google informs me that the "Ides of March" refers to a date on the 15th March on which Julius Caesar was assassinated in 44BC. A turbulent event no doubt. In this post, I wanted to highlight the effect that the month of March has on the stock market. I think you will be amazed at the turbulence it provides. Back when I worked for Morgan Stanley, my old trading colleague used to stress to me the importance of this month as a turn window whether it be an important high or low. The examples I show here will no doubt illustrate this. The key is the underlying sentiment as the window approaches.

As I analyse the global indices today, I am amazed once more at the influence of this seasonal window. So many markets have turned right into this and I think the evidence is growing for a significant top.

Firstly, let me show over the last 10years how the S&P500 has traded around the month of March. Lots of charts here but really this should be quite easy to scan through.

S&P 500 Daily March 2000:
The big 2000 market top that ended the tech bubble. Where did the S&P500 peak? Right into March. A initial 200pt panic sell off ensued.

Where did this initial sell off bottom? Right into March 2001

March 2001:
March 2001 proved to be a strong intermediate low. A 250pt rally followed.

March 2002:
March 2002 topped out a countertrend rally. A destructive sell off followed from 1175 down to a panic low of 780!

The wave 2 low and bottom of the bear market was....right into March 2003

March 2003:

March 2004:
Although not topping out the entire Bull market, certainly March 2004 led to an intermediate high and a 6month sell off from 1160 to 1060 followed.

March 2005:
Again, another important intermediate high right into March 2005. The market sold off quite sharply from 1230 to 1140.

When did the first rumbles of the US housing bubble emerge? You guessed it, March 2007. This time was associated with a panic low in the S&P500.

March 2007:

March 2008:
In 2008 we were on the onset of a crisis. The market put in a intermediate low back then in March 2008 as BEAR STEARNS was bailed out by the FED. Bearish sentiment was at a fever pitch at this point- cue bear squueze.

March 2009:
And just when things seemed their worst, just when it seemed like the financial world was ending as we knew it, the market bottomed in March 2009.

March 2011:
The Japanese earthquake led to a market top in February thus a bit earlier than the window. However, after a 100pt sell off, sure enough we bottomed right into March.

And so here we are now in March 2012. Bullish sentiment levels are at extremes. Underlying momentum and volume despite the run up has been deterioarting for many months. Each new high has produced weakening breadth readings. And finally we have seen a small pullback. Will this produce something more meaningful? I am betting it will.

S&P500 2012:
The cash high was 2nd April (futures high was 27 March). The correction thus far has been roughly 60pts. If history is any guide, expect a whole lot more down the line.

A quick look at other markets shows interesting tops right into March as well. The sell offs look impulsive.

Eurostoxx Daily:

Hang Seng Daily:

Nikkei Daily:


Thursday Plan

This is an Asian Trading blog. I am based in Sydney and my main purpose for setting this up was to share Asian trading setups and technical analysis. I didn't see enough blogs doing this and thus I really wanted to make an impact and provide some quality analysis of the region.

No doubt at times it pays to look overseas. Sure one has to be careful to not get involved in "analysis paralysis" and I strongly believe that you have to really focus on your underlying trading vehicle and market. Just focusing on the bearish setups in Asia coming into the end of March proved this point as we preceded the highs of the US: Look how that Nikkei trade played out! If I had been relying on the S&P500 to make some of my decisions, I would have really missed out on what is going on in Asia.

However, this morning I have been looking at a few Daily charts in Europe and US. The more and more I look, the more I think that we really have seen a meaningful high in the bigger picture. Now may not be the time to short this but any strength in the next 2 weeks I think will provide a great opportunity. Note that March very often produces a major top or bottom throughout history. This has kinda snuck in.

Eurostoxx Daily:
This is clearly an ABC pattern. We have now seen overlap and thus this really cant be an impulse off the October lows. This topped right into a resistance zone and the sell off from the high is looking increasingly impulsive.

DAX Daily:
Clearly the DAX has been a stronger market. However, I can also make the case for a complete ABC move off the low topping right into res. Once again, the top occurred right into March.

S&P500 Daily:
Last night we held that generic trendline I had drawn. However, bigger picture we are trading below my 1370 key pivot. This count was shown to me by my friend at marketletters. Note the momentum divergences into the high AND breadth was also seriously lagging. I am not saying be short here, but a bearish picture is emerging.

The Russell is often know as the beta index. What I find interesting is that unlike the S&P500, this market did not break above its May highs but topped some way short. This is a bearish divergence. Furthermore, we have seen a clear FAILED breakout. These are my favourite trading patterns and imply genuine weakness.

So there are a few things to think over. As ever, timing is everything and I don't think being short after the first big sell off is the best trade. I hope to update you as this plays out.

To Australia. Yesterday was another frustrating one as a day trader. We traded in a 15pt range for most of the day (despite a big sell off in the US). We then finally broke down in the last 15minutes of trade right into my target area.

SPI 60mins:

I could make a case for somekind of ending wedge pattern here. Clearly we are not breaking down impulsively like other markets for now and we are into a decent support area. Potential short term bounce coming but wait for confirmation.

XJO 15mins:

My SPI range: 4240 to 4280. Outlier level 4300.

My SPI day trading plan: We are indicated around 4260 on the open. This is right in the middle of the recent range and thus I don't have an early obvious trade. I will be looking to BUY 4245/4240 if we see an initial sell off and I will be looking to short fade 4272/4275 with tight stops. Note that there is also a possible outlier res level at 4280. Any genuine strength above 4275 (yesterdays high) opens up a potential move back into 4300 and higher. This would trigger that ending wedge pattern above. The trend is still down obviously so waiting for price to confirm is key.