Yup, that was it

Morning All,

I am feeling pretty happy today. Great day in Sydney, I surfed with Taj Burrow the day before last (well he was in the water whilst I was out), and yes- the market is up! The market does this to us. It makes us feel happy when we are making money or when our analysis right. However, in this instance I am genuinely happy not for these reasons, but because I have been thinking like a Trader and carrying out my trading plan. This is not to gloat as I hate those guys out there who tweet endlessly about their successes and coin they are banking. For me, my true joy comes from a realisation of self improvement.

You see, I genuinely believe that the best traders are the ones that think differently from the rest. This is a quote taken straight out from "Trading in the Zone" by M.Douglas and it is so true. It took me a long while to realise this. Like many traders and technicians, I would often trade the obvious pattern with the crowd at exactly the wrong time. I would see a trend once it was already well established and often jump on board, extrapolating this well into the future. It took me a while to really develop an understanding of market structure and profiles. It also took me a long while to really understand the weaknesses in technical analysis. To take this current market as an example, technically we are in a downtrend with many topping patterns in place, we know that the end of QE2 is here thus a natural prop for the market is gone, and the sovereign debt crisis has turned very real. In short, there is not much to like. And yet, if you actually step back and look at where we are, the market is just testing the low end of the range (S&P500 and XJO). The low risk/high reward trade is to buy the panic into this zone and sell it if it drops. That is thinking like a trader. You can use confirmation rules or position sizing algorithms or whatever you like to buy into these zones, but the important part is thinking about risk/reward. Am I actually going to make money being short here or am I best off waiting, or even going long?

I showed a number of interesting stock setups yesterday illustrating this point:
http://swingtradersedge.blogspot.com/2011/06/australian-stock-setups.html. BEN, CBA, NAB, QBE, WPL, RIO are all just testing the low end of the range and support. We are seeing follow through today.

I also put up a post the day before showing the S&P500 and XJO testing the low end of their range and waiting for the bullish reversal candle: http://swingtradersedge.blogspot.com/2011/06/most-important-rule-in-chart-analysis.html. We have now seen those bullish reversal candles.

So where are we now? I think the stage is set for a strong rally in the S&P500 right up to 1325/1330 over the coming weeks. This is in line with my 2007 parallel scenario. If this does play out, that will be the genuine time to short stocks.

S&P500 2007:
I showed this chart the other day. The initial sell off out of the 2007 high was a wedge type pattern. Price tested the previous August lows and held. It was only when the rally out of this wedge pattern failed that the genuine bear market began.

S&P500 Current:
Last night we saw the breakout from the wedge pattern. Price did not get into my ideal 1250 level but neither did it in 2007. I will give price the benefit of the doubt and say that a low is in place. Look for 1295 to break for confirmation. Looking for targets to fib retrace at 1325/1330+.

XJO Daily:
Just to update the Daily chart I have been showing. Price tested and held the previous lows. I do not think we will be going up in a straight line but we will see higher prices over the coming days/weeks imho. Lots of res on the way up so keep trading the levels.

Hang Seng Index
Stage is set for a bear trap if price regains 22,000. This is the most important rule in technical analysis. Note that A=C down off the top and there is a bullish spillover at the low end of the channel.

Nikkei
This market is going to really move one way of the other and it is looking like an upside breakout back up to 10,000. Straddles or upside calls.

In sum, one days price action does not make a trend. However, I do think we are on the cusp of a significant short squeeze. There are good res levels all the way up so trade around these as we move higher. If this is following the 2007 scenario, be nimble as we do head higher. There will be lots of non-confirmations and sector rotations so stick to those markets and stocks that are actually displaying strength.

Thanks
Austin

Australian Stock Setups

Morning All,
I thought I would take a little break from my usual analysis and instead show a number of Daily setups of various Australian stocks. My primary vehicle of trading is the index futures but no doubt it pays to look at what is going on under the hood. I was inspired by the work of Rob at TradeTheTrade so a big thanks to him.

Firstly, to the index:


XJO Daily
Yesterday we saw price test the low end of the range and closed below the previous lows. Note this looks like a mirror reflection of what took place at the highs i.e. spillover and then reversal. We remain at the low end of the range and thus this is an area to be covering shorts and looking for possible long entries.

FINANCIAL STOCKS:

ANZ 
20 to 20.50 looks to be the target zone. In no mans land here unless price regains 22.50 which wold be bullish.

BEN
Testing key support and low end of range here. 8.30 then 8.0 are key levels

CBA
A base pattern is being formed right here. 49 has to hold for bulls, breakout above 50.75/51.

NAB
Base is also being formed here at support. 24 key support, breakout above 25

WBC
Has been a violent sell off but price now testing low end of range. Time to cover shorts and look for possible bullish snapbacks.

QBE
Lots of panic but a great bounce out of the 16.0 support level. A nice illustration of why understanding the levels is so important. Looking for that gap to fill at 17 and then stand aside in short term.

MATERIAL STOCKS:

BHP (i)
Looks like a potential breakdown of support here. 42 to 43 resistance levels

BHP (ii)
However, given my views on the market, to me there is a genuine possibility of this being an ending pattern. Note ending wedge, bullish divergences and the 61.8 retrace comes in at 41. If price regains 42.50+ I think the stage is set for a bear trap and a move back up to 45.50/46. Would this then form a bigger Head and Shoulders pattern?

FMG
Possible triangle breakdown here back to horizontal support

RIO
Testing key 77.50/78 support level. Buy first, sell it if support drops

ENERGY STOCKS:

CTX
Smashed since breaking the H+S neckline. Price has now reached a 100% extension of this topping pattern which is first target. If 10.50 doesn't hold, this could trade as low as 9 before a more meaningful  low forms.

PDN
Stand aside. Targets of 1.80 to 2.0 for this move still

WPL
Topped at 50 now coming into support at 40. Look at what happened to QBE out of a similar zone. Be prepared for a short term snapback rally. Wait for somekind of confirm before going long

CONSUMER STOCKS:

DJS
Key zone here. Looking like a potential breakdown play here if 4.0 drops. Target is 3.40/3.50. If there is no breakdown in next 2 sessions then look for long swings up to 4.60 and possibly higher

JBH
This is a potential A=C trade i.e. swing low has formed. Small base pattern building at 16 it seems. Aggressive long entry if price can regain 17.50/18.0. Breaks of 16 open up possible move down to 14.

"The Most Important Rule in Chart Analysis"

The title of this post is taken straight out of one of my favourite trading books, "Schwager on Futures". The author illustrates through countless examples that a failed signal is amongst the most reliable of all chart signals. I couldn't agree more. What this really means is that when a market fails to follow through in the direction of a chart signal, it very strongly suggests the possibility of a significant move in the opposite direction. Sound confusing? Bottom line, if you think it is a Head and Shoulders top pattern, and everybody is talking about a Head and Shoulders pattern, and there is no follow through to the downside on entry- GET OUT and be prepared to go long. The key is being able to recognise counter-to-anticipated price action that completely invalidates the original setup. I have found this to be especially true in my own trading experience and I thought it would make for a very meaningful post given the current setups and patterns I am looking at in Asia.

Want an example to illustrate? Here is the S&P500 in July 2009. We had seen a very strong rally off the March lows which looked set to end after a "classic" Head and Shoulders pattern formed from May to July. However, there was little follow through in the direction of the short signal below the neckline, and price exploded higher in a huge bear trap.

S&P500 July 2009

Currently, a strong case could be made for a bearish breakdown in the Nikkei, the Hang Seng and the China Composite. Australia could be next to follow suit. No doubt these markets look ominous indeed as the charts below illustrate. However, to me these "classic" patterns are ripe for failed signals, especially given other global markets are not confirming these outlooks. Thus as traders, do we take the short signals and the obvious setup or do we try and stand in front of the train? To me it is quite simple- firstly we go short with the signal and if there is no follow through, we must have plans to flip and go long. Be flexible and adapt. We position ourselves and put our ears to the track and really that is all we can do. If the market fails to uncover any additional selling pressure after the breakdown, then this is a sign of underlying strength. We can't possibility know this in advance until we are positioned. We can draw up confirmation rules or position sizing plans but we genuinely do not know if the market will puke this or whether a bull trap will form. This kind of answer will probably get laughed at by most but this is the reality of trading. Understanding the vulnerabilities in technical analysis is as important as understanding the supposed strengths and setups. I see classic technical patterns fail time and time again, and we are now at a similar juncture.

Hang Seng Daily:
The low end of the range has broken with consecutive closes below the prior support. There should be strong follow through here if this is a genuine breakdown.

Hang Seng Daily ii
What is the plan if there is no real follow through to the downside?  I could argue this is a potential ABC down trade where A=C at Fridays close. Note price is testing the low end of this channel. If price re-enters the previous breakdown level above 22,000, I will be getting long for a bear trap trade.

China- Shanghai Composite Daily
Price tried to build a base at 2700 but price has subsequently broken down. This looks like a good risk/reward setup to get short as support has broken. Only a move back above 2750 would be indicative of a bear trap.

Nikkei Cash Daily:
Months ago I wrote about a possible parallel scenario playing out in the Nikkei to that of the S&P500 post the flash crash: http://swingtradersedge.blogspot.com/2011/03/nikkei-vs-s-flash-crash.html. No doubt I have taken my eyes off the ball in this one of late but this post has proved very accurate thus far. A clear rounded top is forming here, triggered on bearish closes below 9400. This would set up a move right back to the lows. However, once again be wary of any failed breaks below 9400 as the whole market can see this level clearly.

Australia:
Double bottom trade in play here. Note that the top was formed by a failed breakout of the previous high at 5000. We are now testing the low end of the range. Nothing changes for me here- I don't think this is a shorting region and I am actually be looking for buy setups.

S&P500
I put up a detailed post here on my thoughts for this market: http://swingtradersedge.blogspot.com/2011/06/party-like-its-2007.html. Nothing has changed and I believe 1240/1255 will be a solid buying area.

In sum, the patterns in many Asian markets are looking ominous indeed. However, this is not being confirmed in other global markets such as the S&P500, DAX and FTSE which are making higher lows and with momentum clearly slowing to the downside. Personally, I am very skeptical of being short here as I envision a strong short squeeze round the corner. Making money being short is tough especially with this degree of pessimism and negative news headlines. However, we must trade the signals thus I think the key is being flexible here and making contingency plans for possible reversal etc

Good Luck

Party Like its 2007!

Morning All,

I haven't posted for a while as I have been away from trading screens and have quite a lot on at the moment. In my last post, I talked about a potential buying zone in global equity markets as a good risk/reward trade. We did see a strong bounce up to the 1295 res level and 4600 on the XJO with strong underlying breadth. However, this has been firmly slapped down once more given the overnight move. The character of this market has really changed. Every buy the dip spot is not working for longer than 2 to 3 days. In fact, to me it all feels a bit like the initial sell off back in 2007. Certainly there is a huge level of complacency in the market with the VIX only just breaking above 20 last night despite an 8% wash out from the highs in the S&P500. We saw this back at the highs in 2007. It takes time to transition from Bull market to Bear. The hardest thing to do in trading is adapting to changing market profiles. I don't believe we are on the cusp of a market collapse but I do see more weakness down into 1240/1250. The best shorting opportunities will come in my opinion a month or so out once this initial downtrend has ended.

I thought I would show a number of charts focusing solely on the S&P 500 to illustrate some of my points. To me it seems we may be re-living a fractal of the initial move lower in 2007.

S&P 500 Cash Daily 2007:
Note the 2007 top came with a "Double Top" or failed breakout. The sell off from this high was overlapping and stair-stepped lower, eventually bottoming near the August 07 lows. I believe we are at a similar juncture i.e. near the March 2011 low. It was only when the rally out of this level and wedge pattern failed, that the stage was set for a genuine trend change and bear move lower.

S&P 500 Daily Current:
Similar to 2007, the market failed to break above its previous highs. The ensuing sell off has stair-stepped lower. Every bounce has been short lived thus far. However, we are entering the low end of the range thus the best shorting opportunities are not in this area. If the 2007 pattern plays out, look for a breakout of this wedge type pattern and look for shorting opportunities higher up.

S&P 500 Daily off March lows:
The big bull market trendline comes in around the 1250 zone. I have also added the 200SMA and the 200EMA. I do not use these as trading levels but many market participants do thus it is important to bear this in mind. For a good read on how to trade these "classic" moving averages, please read this: http://highchartpatterns.net/buy-the-first-test-but-never-the-second/

S&P 500 Fib relationships:
There is also a strong confluence of fib supports coming in at 1235 to 1250. These are:
i) 1235- 38.2 retrace from the June 2010 low
ii) 1245- 38.2 retrace from the August 2010 low
iii)1250- 61.8 retrace from the Nov 2010 low

In sum, the S&P500 remains in a short term downtrend and I believe we will see more weakness in the ensuing days down to the 1250 zone. Price opened on its highs and closed just off its lows last night thus I would expect somekind of continuation at a minimum today. The bigger picture is looking eerily similar to the technical picture of 2007. If that scenario was to play out, expect a strong snapback out of the 1250 zone that fails at 1320-1330. The best shorting opportunities will be out of this strong thrust. In the short term, being nimble remains the winning play.


My biggest concern for this market is the EUR. Price has re-entered the previous breakout pattern and topped at a 76.4 retrace level i.e. a lower high and Wave 2 spot. Last night's action was bearish indeed and I believe there will be more follow through to the downside. Look for the recent lows to break at 1.40 and price to move to the upward trendline at a minimum.

EURUSD Daily:
The EURUSD topped at a 76.4 retrace of the 1.50 high to the 1.40 low. 1.50 is not a bad spot for a serious high

Some Elliott Musings

Morning All,

Looking like some inital positive follow through for the SPI this morning with night session closing at 4575. The key overhead resistance this morning is the 4580/4585 level. I will fading this level first with tight stops and then joining the breakout if there is somekind of consolidation pattern to play to define a low risk entry.

In my recent posts, I have been talking about buying supports in the low end of this range on the XJO and keeping it tight. I don't think there is a good risk/reward payoff for being short here and I continue to believe this. Remember the Tudor quote :)

I read a very interesting article the other day which ehoes some of my thoughts on the US markets more succiently: http://zortrades.com/bounce-or-flash-time-for-the-sp500/. Last night we had our first green day in the US and I am hoping for some more folow through should 1295 on the Cash index break to the upside. My 1277 buy level on the Eminis was a good one thus far.

Some quick charts for the Ellioticians out there:

S&P 500 Cash Daily:
Fib relationships between the waves, Wave 2-4 Alt, price now hitting the trend channel. This could quickly be invalidated but I like this buy zone.

S&P 500 60mins:
Possible A=C move at 1280. Low risk area to buy for the bottom fishers.

S&P 500 15mins:
Big bullish divergences leading into last nights low. Momentum precedes price. Potential base forming and watch these levels

End of day summary- downtrend continues

Good Evening All,

The ASX200 failed to mount any kind of bullish follow through today and the downtrend re-asserted itself once more. The inability for the market to stage any bounce or follow through in the first 30mins was a lead indicator. From a day trading perspective, buying supports and shorting when it drops continue to be the name of the game. I still believe that we are trading at a great support zone in the bigger picture thus I don't think this is the area to be pursuing short trades from a risk/reward perspective as a swingtrader.I put up a quote today on twitterfeed from one of my favourite traders, Paul Tudor Jones: "I develop idea on the market and pursue it from a very low risk standpoint". I feel this is particularly apt in this current market.

XJO Daily:
It has been a real volatile ride for the Australian market this year. We are now trading right at the low end of the range once more. There was no follow through from yesterdays hammer candle but there are support levels a plenty from 4475 to 4550. We just have to be patient in this zone.

SPI 60mins:
This downtrend has proved very whippy and volatile. Price has made a new low once again but is trading at the low end of the recent channel. Consider swing buys on breaks above 4585/4600.

SPI 5mins:
The market built a range in the first 30mins today with little follow through from yesterdays bounce. As the morning range broke, a strong sell off ensued taking out the 4555/4560 support zone cited on twitter. Get short when support drops. Nice shout out from Simon at 4520!

The pattern is not particularly clear to me in the short term. Support is 4500 and 4520 with resistance at 4545/50 now.

Financials Daily:
A inside day formed today in the solid support zone. Look for a possible expansive move higher tomorrow if we take out Tuesday's highs.

MQG Weekly:
I am hearing a lot of doom and gloom for MQG right now. However, there is actually a very interesting confluence of support from 30 to 31.50. The chart below shows the 61.8 fibonacci retracement from the 2010 high to 2009 low.

MQG Daily:
There is also a fibonacci relationship between the major waves down from the high. 30.50 is a level where C=1.618A. Note also that the 30 level was a key low in May 2009 bfore the strong lift off. There are strong bullish divergences in place currently.

Shanghai Daily:
Shanghai continues to put in a constructive basing pattern at this support zone. Is this a lead indicator for markets? There is an aggressive entry above the recent highs but the big level to me remains at 2850 which this market must clear.

In sum, the market continues to make lower highs and the trend down remains in force. However, we are trading right at the low end of a solid support range and the market is getting quite oversold. For aggressive traders, this remains an area to look for buy setups and low risk setups. If bounces fail to materialize, be quick to cut positions as ever.

Thanks
Austin

p.s. Looking for a low at 1277/1278 in S&P 500 Emini futures tonight based on fib relationships. Write that down :)

Buy the dips, Sell the rips

Good Evening,

I put out a rather bearish post on equities after the US overnight sell off on the 1st June: http://swingtradersedge.blogspot.com/2011/06/1st-day-of-month-ouch.html. For the first time in a long while, a strong initial breakout from a solid basing pattern failed to lead to a sustained move higher. This was a warning sign for weakness ahead. We have seen subsequent bearish follow through with the S&P 500 approaching my first target of 1285/1290. I believe it is far to early to call this a major bearish trend changeat this stage. A change of trend would only be confirmed to me if price closed below the last intermediate low i.e. the March lows at 1250.

I think we are seeing a natural rotation out of risk assets as we approach the ending of QE2 and as the financial situation in Europe intensifies. It is unfortunate to be on the receiving end for our Asian markets but it is the reality of this coupled world.

Tome,the best strategy to be followed at this stage is buying the dips and selling the rips, and being more short term until a clear trend does emerge once more.Looking through the charts, it appears we may be at another opportune time to buy the dip in the short term. The XJO is approaching the low end of a major range defined over the past year or so. As traders, we buy support and sell it when it fails. Today's action was encouraging with a short term double bottom pattern and a hammer on close. It is early days and the short term trend remains down, thus be nimble off these support levels.

XJO Daily:

SPI 5mins:
I called out the 4545 as good support today on twitter and was looking for breaks of 4555 for more bullish momentum. This worked out well today. This double bottom trade is indicative of base building once more.

Oz Financials Daily:

The Financial broke the recent trendline I had in place but are also right into the low end of the range. Note that price has fallen in a sharp ABC pattern where A=C. A hammer formed today and thus a tradeable low is in place.

Shanghai Composite Weekly:

Shanghai Composite has been a real regional laggard. I showed a number of key levels in the 2800 region that went some weeks back. However, looking at the weekly chart, it appears that price is respecting a major trendline off the 08 lows. I don't believe this is tradeable for now but bear in mind that price is holding in here.

Eurostoxx 60mins:

Eurostoxx June is testing it's previous lows here. Bullish divergences are in play and the setup is ripe for a Double bottom trade with tight stops.

In sum, we have seen some genuine selling since the 1st June warning. It is too early to be calling this a major bearish trend change at this stage but certainly breadth has supporting the move lower with initial supports at 1310 decisively breaking. Despite this, I am looking for tradeable lows here out of 1285/1290 and then 1250.

1st Day of the Month- Ouch

Morning All,

Well I certainly wasn't expecting that overnight. Perhaps I have been somewhat complacent after seeing a great turn out of my buy zones. 1345 in the S&P Eminis and 4740 in the SPI were my first targets but I was anticipating a much higher bounce in the upcoming days. We may not get that.

A few things from last nights session in no particular order:
i) European Indices closed right back down into their previous base zones. This is bearish and indicative of a failed breakout. I for one thought we had seen a strong range expansion but price has swiftly reversed. There is no new low yet but this is bearish.

ii) Breadth in the US was solidly bearish. NYSE Declining issues closed at 4.3:1 vs Advancing issues on strong volume of 1.1bln issues.

iii) High beta US indices noticeably underperformed with the RUT -3%. The S&P 500 opened on its high and closed on its low with no bounce of any sort. I would expect somekind of continuation of this move at a minimum.

iv) Last night was the first trading day of the month in the US. The performance on the first trading day often sets the tone for the rest of the month. I showed an interesting chart reflecting this on my previous blog and I will dig this up.

v) Price failed to hold above the declining wedge pattern. Thus, it looks like a bull trap has played out here. No new lows have been made yet but if 1313/1315 breaks on the Cash index, I think we could be looking at a much larger and deeper move right down to 1290 and possibly even 1250.


I hate to turn bearish after 1 night of action especially given no new lows have been made. However, the stage was set for a good rally after a long drawn out overlapping corrective move off the Osama top. The rally has now quickly been beaten down. Any break of the recent lows will open up a lot of selling.

In the SPI/ASX200 today, we must always trade our own market based on its own characteristics. We are looking at a possible 70 to 80pt gap down. Thus, my gap strategy is firmly in play today but I will be very wary of any failed rallies in morning trade.

Support levels of interest:
i) 4630/4635- this was the previous key pivot on the 25th and 26th of May leading to the recent breakout. The night session also closed here overnight.
ii)4615- open gap but this is a minor level I believe
iii) 4600- round number support. I will be playing this

Resistance levels:
i) 4650

I will leave you with some charts showing my concerns:

Emini June 60mins:
Failed breakout

Dax June 60mins:

Good Luck
Austin