Asian Market Update

I thought I would run through some Daily charts of the major Asian Indices and update the technical picture since my last major post: http://swingtradersedge.blogspot.com/2011/06/why-i-still-like-asia.html. That post proved timely indeed and we have seen a pretty strong thrust higher. The power of failed technical patterns hey! I do believe we have higher to go still but it looks like it may be time to take a bit off the table in the short term.

I love the simplicity and effectiveness of Daily charts. They really do offer such a clean overview of price action and the battles won on a day to day basis. Regardless of whether you are a short term intraday trader or monitoring longer-term positions, much preparation must be done when the markets are closed and Daily charts should be that starting point.

Shanghai Composite Daily:
A great double bottom trade and bear trap on the close back above 2650. I think the short term target for this index is 2850 to 2900 and then we see. A great illustration of the amount of money that can be made by looking for "test" trades and low risk turns.

Hang Seng Daily:

The breakout trade above the 22k level proved to be a great one. With a gap up like this right into the 38.2 fib retracement, you just have to take some off the table. Short term I think 22,900 to 23,000 will prove good resistance. Ultimately, this could advance right back up to the top end of the channel but that is some way off yet.

India BSE 30 Daily:
This market has surged off the double bottom trade right into overhead resistance. The trade now is to take some off the table and look for either i)short term scalp shorts vs this downward trendline ii) the bigger picture breakout trade

Nikkei Daily:
Successful breakout right into the 10k target. I would be out of this market here and possibly even looking for double top short

Strait Times Daily:
Great bounce out of the upward trendline and breakout trade. Price is now rallying right into the overhead downward trendline. Similar to India here.

ASX200 Daily:
And finally to Australia. This is the laggard of the region and I believe it will remain this way for the foreseeable future. High rates and a high dollar do not lend themselves to overseas flows which are integral to getting a market really juicing. Furthermore, we have an inept government who do everything in their power to worsen our economic fortunes (rant over). Anyway, I still think this market has higher to rally but it will be stop and start as I have been stressing. Still looking for 4700 to 4750 and then we will see.

In sum, bulls should be tightening up risk as we move into the cited res zones. I find the best swing trades last for a period of 7 to 10 days and it has been a great run out of all these failed technical patterns and double bottoms.

Thanks
Austin

Is This A Fade?

The rally overseas has run right into my target zone. And then some. It always amazes me how the market can go from one extreme to the other in such a short space of time. Time to switch off the guns from one of my posts only a few days ago: http://swingtradersedge.blogspot.com/2011/06/switching-to-guns.html.

As traders this is what we crave but you just have to be willing to develop that low risk idea and understand the nature of the market. The best time to be short is never after a protracted decline off a new market high. In fact, there is only a really a short window of opportunity to really make money from being short equities ever, especially in this bull market. This is the reality how the equity market operates and the reality of a 0% interest rate environment.

Much as I was looking to buy in the low end of the range, I would be looking for low risk short opportunities at the top end of the range. This is a short term trade only for now given this is a fade trade vs a new trending up move. The market is going to do a few things here: it may continue to move higher and advance towards the previous high at 1370; more likely there may be a brief "pause" and retracement back to 1320/1315 before the highs can be reached; or the market will fail spectacularly and trap all the bulls leading to a genuine market top and lower high. Obviously I don't know which scenario the market will follow but in 2 out of 3 of those scenarios mentioned, I make money by shorting here. Makes sense to me to short first with tight stops, and join once more if the rally is the real deal.

S&P 500 Daily:
This is my target zone. I like 1340 to 1345 as short levels. This is the 76.4 fibonacci retrace, the high of the previous breakdown candle, and strong overhead resistance. A high here would make for a nice Head and Shoulders pattern indeed.

Once more to illustrate what happened at the high in Oct 2007. The market broke out of an ending wedge pattern but ultimately ran out of steam right at the 61.8 to 76.4 fib target zone. That huge bearish reversal candle set the stage for a real panic sell off. If we are to continue to follow this parallel, look for similar confirmation and it has to happen NOW.

S&P Daily Oct 2007:

Given it is a public holiday in US, it will be interesting to see if anything comes out of European trading tonight. Asia has been relatively lacklustre today and I will put up a more meaningful post after todays close.

Austin

Targets For The Rally

Morning All

What a week. I wake up this morning to see the S&P 500 another 1% higher right into my 1320/1330 target zone and fulfilling my projection that I called for on the 22nd June: http://swingtradersedge.blogspot.com/2011/06/yup-that-was-it.html

I am sure there are many bears out there who are confounded. However,  anyone who has been reading this blog consistently would have nailed this move. This is not to gloat as no one likes those services. However, I genuinely believe that you will find very few blogs offering the depth and accuracy of analysis provided here. My intention here is to try and get readers to look back over recent posts and understand not just the setups, but the thinking patterns required to be a success in this business. I guess there is no better avenue for marketing then putting your analysis out there and getting it right. This also means that I am probably letting my emotions get way ahead of me so I am probably good for a fade :)

Here are some recent posts of interest:
22nd June:http://swingtradersedge.blogspot.com/2011/06/yup-that-was-it.html
24th June:http://swingtradersedge.blogspot.com/2011/06/hammer-time.html
27th June:http://swingtradersedge.blogspot.com/2011/06/why-i-still-like-asia.html


So where to from here? As a swing trader, I take profits in the direction of the price move or just as price reverses via a trailing stop. Swing trading depends NOT on riding out the reactions or giving up profits already won like Trend following. Thus, right here I wold be tightening up risk considerably and letting the market take me out. If you caught this move successfully you should now be on short term look out to lock it in.

S&P 500 Daily:
My target zone for the S&P 500 was from 1320 to 1330 and this is illustrated below. We have the 61.8 Fibonacci retracement coming in this zone and I have always found this a key reversal point. Note we also have a strong confluence of resistance at 1340 which is the 76.4 retrace and overhead horizontal resistance. Obviously I have no idea where this rally will halt thus letting the market take you out or trailing a stop is key. I would wait for a strong bearish reversal as confirmation before looking to short

S&P 500 2007 Top:
I have been following an interesting parallel with the 2007 topping pattern and this continues to play out to a tee: http://swingtradersedge.blogspot.com/2011/06/party-like-its-2007.html. Note that in 2007 we reversed right out of the 61.8 retrace with a very strong bearish candle reversal. Look for something similar if this scenario and parallel is to continue to play out. I think it just might but let the market prove it first.

And now.....
2011

I would still give this rally a bit more time before getting bearish. However, just as we had to be willing to buy it when no one wanted it 2 weeks back, be on guard to sell it when everyone wants it. I do think there is a strong possibility the high for the market is in so you will want to be on guard. If this is going to follow the 2007 pattern, look out below

XJO Daily:
Yesterdays breakout confirmed a short term trend change. I envision that the rally out of this low will be stop and start with many back and forth moves. Ultimately, 4700 to 4750 looks like an interesting resistance area. The rally is still in its infancy so give it a bit of time before getting too bearish.

EURUSD Daily:
Broken out from one minor trendline and looking for a larger breakout to "test" 1.50. Any failure to break the 1.50 high would seal a meaningful high to me

AUDUSD Daily:
Still think price has more to do on this breakout and I am looking for 1.08/1.085 at a minimum. Ultimately, a test and failure of 1.10 would be ideal to confirm a more meaningful top and shorting area.

Thanks for all the comments and messages on the blog of late. I value all the interaction and the feedback so pls keep it coming. I hope you are enjoying my commentary and using it to the best of your abilities.

Thanks
Austin

Morning Thoughts

Morning All,

Last night the S&P 500 closed above key resistance and continues to build on the low I have been talking about here. I am sure the papers will be littered with headlines this morning about the successful resolution of the Greek problems causing the market to rally. Ha.  Just remember, we bottomed 8 to 9 days ago. Price moves first, then the news comes second. I do still think this market has higher to go still and I will put up a post later on today with potential targets.

S&P 500 Daily:
Confirmation of breakout pattern.

AUDUSD
Also saw a successful breakout of the wedge pattern. Currencies love the round numbers and 1.04 proved to be a formidable trading low. Still looking for a retest of 1.10

To Australia today. The XJO tested and successfully held the March lows. Note that price consolidated below this level but there was no follow through to the downside. This is indicative of a classic bear trap and is inline with countless other setups I have seen and posted about throughout Asia: http://swingtradersedge.blogspot.com/2011/06/why-i-still-like-asia.html.

If the XJO trades and closes above 4565 we have a confirmed short term trend change i.e. High, higher low and then new high. See chart below

XJO Daily:

SPI futures are indicated to open at 4545/4550 thus a 30 point gap up. The key resistance levels are 4550/4555 and then clear room up to 4590/4600. My plan today is to look to fade the opening move in the 50s and if there is no follow through to the downside, I will be looking to join the breakout higher.  It is interesting that the market has failed to build on any of the overnight gaps (i.e. go on to make a new intraday high) over the past month or so. When the market does, that will be indicative that the character of the market has changed at long last. I am hoping today will be that day.

Switching To Guns

Morning All,

A strong bounce in the US markets overnight has taken us right into recent resistance. The market has transitioned from a clear downtrend, to volatile sideways base building, and now we are on the cusp of a genuine breakout. Breadth has improved and fear peaked right on the low. I am sure there are many traders who are fully aware of this 1295/1300 resistance zone in the S&P 500 and there will be a lot of buy stops above this level. Bottom line, I think this level gets breached and we will continue to see an advance up to at least 1320. Then we see. This market continues to follow the 2007 scenario I have been talking about: http://swingtradersedge.blogspot.com/2011_06_16_archive.html.

S&P 500 Daily:
A strong base pattern has been built and we are now testing overhead resistance. Look for breakout trades and switch to guns.

Nasdaq 100 Daily:
This market is always a lead indicator. Price has already broken out of the recent base pattern. A new trend up has begun

I showed this chart the other day and I thought now would be a perfect time to update. In almost all the significant low points in this bull market, the S&P 500 has built a solid base prior to a strong breakout. I believe we are at a very similar junction.

S&P 500 Daily 2010- Present

To Asia today. My thoughts have not changed since my recent posts:
http://swingtradersedge.blogspot.com/2011/06/why-i-still-like-asia.html
AND http://swingtradersedge.blogspot.com/2011_06_20_archive.html.

I believe we have seen peak bearishness and a number of failed technical patterns which all imply to me that this rally has more to go. Australia has been a laggard in the region no doubt. However, we are looking at yet another strong gap up today and if this should hold in the first 30mins above 4500, I feel that finally our time has come to transition out of this downtrend. It is all about developing a low risk idea and pursuing it until proven wrong.

Thanks
Austin

p.s. Currencies are always an important lead indicator to me. I don't see too much panic in these 2 patterns. Looking for breakout trades also here

AUDUSD Daily:

EURUSD Daily:

Why I Still Like Asia

Morning All,

I had a question the other day from a reader who wanted an update on the Chinese and Indian markets.  In the past, I had shown broad consolidation patterns for both these regional powerhouses and now is an opportune time to update.

I put out a post the other day on the most important rule in technical analysis: http://swingtradersedge.blogspot.com/2011/06/most-important-rule-in-chart-analysis.html. I wrote this to try and illustrate the weaknesses in "classic" technical patterns that most of the market look at, and to try and prepare myself for a possible bullish reversal when all was looking doom and gloom. Obviously I had no idea if these patterns would fail but my experience has taught me to be very wary in such situations. My central point is- if a market fails to follow in the direction of a trading signal and pattern, it is a strong indication of a strong reversal in the opposite direction. I believe we are now seeing this reversal in the Shanghai Composite, the Hang Seng and the Nikkei. Other regional indices are also holding key zones. It is obviously still very early days and US indices are hardly looking rosy. However, I like these risk/reward setups in the short term.

Firstly, to China. There was a close below the big weekly triangle pattern that brought the bears out. It is at these times that fear hits a fever pitch as shown in some of these posts: http://www.zerohedge.com/article/chinese-1-and-2-week-shibor-rates-surge-over-9-highest-2007 and the mighty Goldman Sachs head technical analyst (go to page 12 of this report re Shanghai Composite): http://www.zerohedge.com/article/podcasting-charts-matter-next-week-technical-look-european-breakdown. This break was complety recovered and we have now seen a strong bullish engulfing candle.

Shanghai Composite Weekly:
Bullish engulfing candle just after a spillover of the trendline.

Shanghai Composite Daily:
Bottoms right on the 61.8 retrace. No follow through from the breakdown of 2650. Back to back strong bullish candles. Need 2750 to break to upside to get this bear squueze really fueling.

Hang Seng Daily i:
Looked like a breakdown of the range but....

Hang Seng Daily ii
.....there was no follow through. Shown this a few times of late. We have a A=C complete move lower i.e. a low turning point, price hit and reversed right out of the low end of the channel, and price is now testing the 22k breakdown zone. Look for breakout trades above 22k.

India Daily:
My original consolidation pattern months back did not lead to a breakout. Price was capped by the downward sloping trendline.

India Daily ii:
However, price has now tested and held the previous lows with a strong double bottom pattern in place. I tweeted about this zone during the week. Speaking of failed breakdowns, this also looks like a huge failed breakdown of a multi month triangle pattern. Price has recaptured the upward sloping trendline with a very strong reversal candle.

Nikkei Daily:
Price failed to breakdown through 9400. Now seeing a good breakout of the wedge pattern and looking for a retest of 10,000

Singapore Daily:
Broad consolidation pattern still intact. Price tested and held low end of trendline. Look for breakout of this recent range for a strong thrust higher

Like ever, being flexible and heeding price action are the key skillsets for successful trading. Hopefully some of these patterns and updates illustrate this. Good luck

Austin

A Topping Pattern Anyone?

Happy Weekend All,

I bring rather bad news in tonight's post. I think the Australian market has topped. I have been pouring over the weekly charts of some of the major stocks of late and the technical situation from a big picture perspective is real bearish indeed. All rather sobering charts so perhaps now is the time to pour yourself a scotch as you read this.

I must stress from the outset that these are WEEKLY patterns and thus perhaps not immediately actionable for many traders. I have been saying for a while that I think a short term tradeable low is forming and I still believe this may be possible. The simple fact that I am writing this now may be indicative of peak bearish sentiment i.e the worst time to be short. However, if my read on these charts is correct, as we draw to the end of the summer you will want to really be getting out of this market. It feels a lot like 2007 and drawing on experience is paramount. To reiterate where  I think we are at in the more immediate short term, pls read this: http://swingtradersedge.blogspot.com/2011/06/party-like-its-2007.html


And so to the big powerhouse of the Australian market, BHP. The resource major has formed a huge Double Top pattern. The inability to break its previous highs should be viewed as an indication of a major trend reversal.

BHP Weekly:
Double Top at 50. A nice area and number for a major topping pattern. Note the weekly trendline break

If you want an example or a reminder of what happens out of these kind of ending patterns, look no further than the S&P 500.

S&P 500 Weekly:
Double top and then major trend reversal. No doubt the 2007 top took time to build but all the warning signs were there.

BHP Daily:
Back to BHP and in the short term we are testing support. I still think there is the possibility of a good bounce out of here. Should this materialise, we could also be looking at a possible Head and Shoulders top.

NCM Weekly:
Another major materials stock. Another Double Top pattern. Note the 3 wave push into the recent high

FMG Daily:
Looking like a Head and Shoulder top is forming here

WOR Weekly
Double Top pattern and shorter term rounding top. Really ugly weekly chart

The energy sector is not looking particularly healthy either.

STO Weekly:
Santos has formed a major top pattern. Price is testing the low end of the range in short term but I would view good bounces as a great time to get out or short this stock

WPL Daily:
A test and failure to break higher. Major topping reversal candle. Testing low end of range for now

OSH Weekly
Failed breakout and now a head and shoulders top is forming.

Finanical stocks are not looking too healthy either.


CBA Daily:
CBA tried to break out of a multi month consolidation pattern and failed spectacularly. Note that price topped right on the 61.8 fib retracement. If 49/48 breaks to the downside, I could see a move right back down to 40.

ANZ Daily:
Double or triple top? Call it what you want, it cant break higher

How is tech looking?

IRE Weekly:
Not so good. Look out below when this ending diagonal breaks.

You know a market is in trouble when even the defensives look like they have topped.

CCL Weekly:
Coca Cola Amatil has formed an ending wedge and possible double top

COH Weekly:
Double top and ending wedge. This shows what happens when these wedges break- price falls hard and fast.

This is the one chart that really scares me. In fact, this really could be the last shoe to drop and is indicative of the final hoorah

ILU Daily:
Do you want to hold a stock that is almost vertical? Sure I could change to log but seriously, this is absurd. I just don't see how this stock can keep up this velocity. This is a bubble

Silver Daily:
Want to see what happens to a market that is vertical- it finally implodes in ghastly fashion.

I could pull up more but I think you get the message. The big picture in Australia looks horrible. I would be using any good bounces over the next month into August to be getting firmly out of this market and hoarding up. Hopefully I can guide you through and offer helpful suggestions as this plays out. These are topping patterns and if my work is worth anything, then this message should be heeded.

Thanks
Austin

Hammer Time

Morning All,

A volatile session last night that resulted in a test of the recent lows and a strong bullish reversal. Bullish hammers have been left in a number of markets such as the S&P500, Nasdaq 100, AUDUSD and EURUSD. Rarely do you get a "clean" market bottom and I feel that last nights action is indicative of base building with the bulls coming out on top. We saw this kind of back and forth action at the July, August and November 2010 lows. No doubt I was worried as I hit the hay stacks last night but ultimately it is fear and panic that creates genuine market lows and turning points. I received 2 emails PRE US MARKET OPEN from supposed prominent technicians warning about pending disaster etc and there was a frenzy at the usual bear blogs (386 comments at Danerics "Eminis update"- no offence meant, just an observation). Seems to me these are the correct sentiment conditions for the bear squeeze to now get properly underway and confirm my technical outlook.

I try to focus on Asian setups and technicals. However, given last night's action, I feel it is very important to highlight a number of overseas markets.

S&P500:
Very wide ranging candle and test of the previous lows. Bulls came out on top with a bullish hammer left. I love to get long on close having seen these kind of candles. A clear range has now been established from 1260 to 1295/1300 so look for breaks of either for full confirmation.

Nasdaq 100:
A bullish engulfing candle left right at support. Who better to lead the charge than the high beta tech sector. This looks like a strong base pattern to me. Note that the low was formed on a perfect 100% extension of the previous wave down. Buy more if/when resistance breaks

S&P500 Daily:
This chart shows some of the lows that formed over the past year or so. Note that there is often a period of back and forth trading before a genuine breakout ensues.

AUDUSD
On Twitter last night I said "that 1.06/1.0650 level is stiff res. Buying support at 1.05 and 1.045, selling below". The 1.045 level worked like a treat with a strong bullish reversal. Only if price breaks above 1.065 now would I deem a good low in place

EURUSD
This is clearly a 3 wave move down from the recent 1.47 high. To me this implies this is a corrective pattern and NOT the beginning of a genuine breakdown for now. Looking like a triangle similar to AUDUSD.

What does this mean for Australia today? Price tested the previous lows overnight at 4435 and held in a strong double bottom play. We are set to open at 4485 which is right in the middle of the recent range thus no obvious trade here. Support is 4450 with resistance at 4495/4500 and then 4525. I will looking to  join this overnight bounce out of the right level to see if there is any continuation. If there is no bearish reversal candles out of those resistance levels cited, look for breakout trades after the first 30mins and hold to the close. Ill update on twitter throughout the day.


Bigger picture we will have a confirmed short term trend change if price can trade above 4555 i.e. High, higher low, then new high. See chart below

XJO Daily:

In sum, I believe we saw an unsuccessful breakdown attempt last night in overseas markets. I have been leaning bullish here the last few days and I believe there is enough evidence in place to confirm a strong tradeable low. 1295/1300 seems to be a formidable barrier so look for this to break to add to inital positions. Friday trading is often a lottery but look for 4495 and 4500 in Australia to break for more momentum higher.

Thanks
Austin