Monday, August 24, 2009

Bright and early

Well as I am back in the UK at the moment you can get my updates in the early morning =) I had made a large update over the weekend - lots of venting in there but the middle section has a bigger picture view that is quite important for us.

Previous Trade Day & Week
I wanted to re-emphasize again what happened last week. From a charting perspective Friday and the resulting weekly close has really baffled me. I went back through many charts over the weekend and I have to admit - its not something I had seen before at least with this type of setup. Looking at the weekly candles, we hit major resistance three weeks ago, then had a narrow sideways candle and a large engulfing breakout candle. I am not sure what to make of it yet and this will definitely be something that will result in a long term direction of some type. By the end of this year I am confident we can go back to this specific setup and try to figure out exactly what it meant. The interesting aspect of this pattern is the swift break through a major resistance level without any type of pullback - in addition to those 3 weekly candles being right on top of this rallies trend line. Only time will tell.

At the risk of sounding like a broken record - we are quite overbought again. The last time we were at such an overbought level was the breakout through 930 and we all know what happened then - we continued rallying without any significant pullback. Will this time be the same? Futures are already up 6 points, though its interesting to see that the dollar is not supporting this move. Yes they are not directly related but an important enough divergence to mention. Believe it or not volume overnight has been quite strong and other world markets are tracking the US markets gains from Friday.

Today it could be dry or it could rain. Resistance levels on the upper ranges are really difficult to identify at the moment as we are in a valid breakout mode. We could use the overnight high as a guide @ 1033 SPX, however, I would not put that much attention on this number today. On the lower end of course the important 1012-1014 levels that appear as a valid target for a pullback to retest the breakout range and rally higher. The market now has enough of a buffer to absorb a strong sell off into the 1000SPX range and hold this as support.

For the bulls: Bulls have the advantage at the moment and can drive price direction quite easily. Lower end targets at key support @ 1000 are easily protected due to new retail dip buying and short covering of bears that saw the breakout last week.

For the bears: Well, as a bear one has no choice to continue to remain on the sidelines as this market has no desire to move lower. At this point bears are royally screwed as all patterns and scenarios point up, even if we have a stronger retracement coming. Even a sell off with a lower high cannot be considered a real confirmation for the bearish trend to resume.

Special Note
It seems that tension is growing among bloggers. We are seeing quite a large amount of blogorama and many blogs now trying to accept the fact that we are moving higher without stopping. It seems most reviews I am seeing are pointing to upper range targets without any blog considering a strong pullback. We are at the doorstep of the GS 1050 range, and of course the other magnets @ 1100 and 1200. I have to admit, everything is pointing at those ranges and with the current bullish sentiment not just among retailers but also institutions I see no reason to "believe" otherwise. The reason I am mentioning this is the sentiment - during important turning points you see both ends of the spectrum going at each others throat and generally a very one sided view by many analysts. Kind of "well, its going up because that's what it has done over the past 5 months" - can it continue? Oh yes it can, look at any bull market, regardless of how long or short it may have been. Just one direction.

This will be an important week (like every other week) but I will be watching this one here VERY closely.


  1. Dollar Update: there is a high chance that Friday last week completed a low in the dollar. On Friday I have been trying to short EURUSD for quite a while during the overnight session and finally got my position during the day - my largest forex position yet. Looking at the 60 min today we are at a cross road to either get an ABC correction to make another big move on the dollar (that would support equities going to 1050+) or we are at the verge of starting a new uptrend (downtrend on EURUSD).

    Looking at the price action on the microperspective we could be setting up for our first wave with a 1-5 minor wave count. We will have the answer very shortly here and by the end of today we can draw some conclusions to this move.

  2. that was excisting lol a small 4 point drop and I am getting excited ... sad day for da bears when a minimal drop like this makes me happy =)