Monday, 21 May 2012

Updated Market Outlook

Morning All

Well the last few weeks have been truly savage. It just goes to show how fragile this market really is given that a whole years gains can come undone in a matter of weeks. One by one,topping patterns have formed with the US Equity market the last to crack.

With the SP500 breaking and closing decisively below 1340,we have now entered a new cycle I believe that will continue for weeks and possibly even months. All we can do is play the levels and take it one step at a time, but certainly it appears that caution is the name of the game for the foreseeable future. At some points, the market becomes a self-fulfilling prophecy and it appears the growing chorus of bearishness has decisively changed the character of this market. Of course there will be bounces and vicious squeezes. The simple fact that I am writing this in such a tone implies we might be on the cusp of a bounce now. That is the nature of bear markets. However, the breaks across markets look impulsive and the start of new trends lower across risk assets.
  • S&P500 oversold bounce zone at 1280/1290. Volume and breadth have both reached potential short term panic extremes. This bounce zone is best left for short term traders. Look for potential Tuesday/Wednesday turn. The bigger money will be made sitting in this new trend down. Key risk is now a close back above 1340 for bears. 
  • NASDAQ100 entering previous 2012 breakout zone. This should be formidable support on the first re-test. 
  • EUR entering previous lows at 1.26/1.27 and risk of bounce here. AUD at 98c support level but needs to do more work before a confirmed turn DXY into overhead resistance. 
  • Confirmed bearish breakdowns across Asian equities imply further weakness in weeks and months ahead. There is also a risk of an oversold bounce but this should provide a good opportunity to re-establish core shorts. The swiftness of the current sell off shows that this market should not be massaged too much. Holding core shorts and themes is key. 
  • Australia is the most bearish market in region. That market is a core short with targets down to 3800. Look to play bounces out of S&P500 or potentially HSI.  
  • The DAX failed to bounce out of key support zone of 6350/6400. This implies genuine weakness.

S&P500 Weekly:
A bearish reversal candle through the key support zone and previous breakout level. 

S&P500 Daily:
Strategic View: The bearish close below 1360/1340 support zone has shifted the trend to down. This opens up a deeper move to1200/1220 in coming months. Follow the new trend down.

Tactical View: Oversold bounce likely in coming days. This is for short term traders only. Position traders and investors should be using any bounce to establish core shorts into 1320/1340. Re-establish shorts if 1280 drops.

1280/1290 should be a decent bounce zone. This is the 38.2 Fibonacci retracement off the October 2011 lows, and a key trendline. Key is waiting for confirmation first such as a bullish reversal candle or a base pattern on the lower time frames.The 200 day exponential average was overthrown but these are not always exact hits (note Nov 2011).

NASDAQ 100 Daily:
Adding weight to a potential short term bounce scenario is the NASDAQ100 which has sold off into the previous breakout zone. 2400/2450 will prove a formidable support zone on first test.  


Australia Weekly:
Very bearish breakdown candle through the upward trendline and ascending triangle. This opens up a move down to 3800 key pivot level and even a possible retest of the March 2009 lows. One level at a time. 

Australia Daily:
Strategic View: Bearish and following trend lower to first target of 3800/3850. The fact that this market has underperformed all of its global peers since 2009 lows implies genuine weakness indeed. This is the laggard of the region and should be the key short play.

Tactical View: Short term bounce possible out of 4000/4050. However, this is the weakest market in the region so prefer to play other markets for a risk bounce. Focus on re-shorting into the downtrend.

Hang Seng Weekly:
Breakdown through upward flag. Opens up a retest of the key pivot level at 16,000.

Hang Seng Daily:
Strategic View: I was cautious on a break of upward trendline and now bearish on the clear breakdown through support.

Tactical view: Oversold into support zone therefore cover shorts. Waiting for bullish reversal candles to play a short term risk bounce. Look to re-establish shorts at 19,500/20,000. A break above 20,000 would be key risk for bears. 

A Shares Weekly:
Further confirmation of triangle pattern. Looking for breakdown through low end of triangle for potential wave 5.

A Shares Daily:
Strategic View: Bearish and confirmed reversal at top end of range.

Tactical view: Remains a core short and happy to ride trend lower. Obvious bearish repercussions for Australia.

KOPSI Weekly:
Very bearish reversal and breakdown through flag/pennant pattern. This looks to be a sharp C wave down with targets into 1500/1550.

KOSPI Daily:
Strategic View: Bearish on breakdown through neckline and upward trendline.

Tactical view: Cover shorts here. No need to catch a falling knife in this market for now, especially as it is one of the most volatile in the region. Look to re-establish shorts in time .

Nikkei Daily:
Strategic View: Bearish on breakdown through support zone of 9000/9100. Initial targets of 8000 but more meaningful target at 7000.

Tactical View: I was looking for a potential bullish  turning point and this was clearly wrong. Short bounces back into overhead resistance.


AUD Daily:
Tactical view: Looking to get long in 97/98c for a solid bounce back into parity. This could potentially be the low end of a C wave as part of a broader triangle. However, note it is very unlikely that AUD will hold up in a risk-off environment in months ahead therefore triangle interpretation in jeopardy.