Tuesday, July 20, 2010

So I was wrong - maybe?

Well, price action since Friday has painted a very clear picture. While I did take a long yesterday I was very concerned with the lack of follow through and as a result closed out all longs again with some decent short term gains. Lucky me ....

While USDJPY is still above my entry price (and what a nice/lucky entry that was) but its forming what I believe may be a bear flag (or bull flag depending on how you look at it). This pair really needs to make a move above 87.2 here in the next 8 hours or we will see lower prices.

SPX wise, we just hit the 50% retracement on ES and hit our magic round number of 600 on TF (russell) twice yesterday and overnight. ES making new lows while Russell is able to bounce of yesterdays low. If we are to break our overnight low we have a good 10 pts to go on the downside before any bounce can develop. Key support on ES is in the 1039-1041 range and this should come with STRONG buying and will also correspond to a 61% retracement so regardless of morning price action I will have big limit orders waiting in the range for futures and etfs.

For today, we are looking for continued weakness, first at our overnight lows in the 1050 range (are we here already again?) and of course 1041 on break of the low.

Another thing I wanted to talk about is the "tripple" channel patterns. Many times when looking at any chart by the time a price channel is hit for the third time either on the upside or downside the trend has an extremely high probability of changing. My longer term readers may remember - 4th time does not happen and generally will lead to a break or continuation to develop into something new.

The dark blue was a retest of the previous low so it could be ruled out. As you can see we had three tests on the upside and 3 (or 4 if you count the re-test of the important low). From here on out - the next test on that trendline WILL result in a break. The market is about probabilities and scenarios that can unfold and its extremely rare for me to use statements such as "will, is going to" - this is one of those times.

IF we are to get back to the lower part of the trendline (which also means a new low) we will see selling accelerate by a HUGE amount - trust me, it will be quite strong and fast but I give this the lowest chance of happening.

Overall I am still looking for a bullish continuation and "hopefully" (here I go again with choice of words) a strong bounce followed of the targets identified above in the 1039-1041 ES range. We may never get there and reverse before but that would also give us a great sign allowing us to get back into longs on fall back to 1075 after the 1085 re-test.

Longer term, the month of July is still extremely important from a weekly and monthly chart perspective. By the end of the year we will be looking back at those specific weekly and monthly charts and know why the market turned the way it will turn this month.

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