Video of current market thoughts

All
It has been a while since I last posted. I apologise but I have been busy launching the new FP Markets Research section where you will find most of my content.

I have decided to do an educational video regarding my current thoughts and setups across Global Indices, FX and Commodities. Please find this video here: http://www.screencast.com/users/austinmitchy/folders/Default/media/297e4b1f-fbc8-4bb5-9b7a-e3e31cffd9fa

No doubt we are at an interesting zone with many traders wondering if this is a dead cat bounce or the start of a more meaningful move higher once more. My thoughts and analysis are all contained within the video.

I hope you enjoy this and please feel free to give some feedback. I intend to do a whole host of videos going forth and it would be great to hear what readers want to see.

Thanks
Austin

Topping patterns and a Fruit Company

My observations below should be viewed as general advice and may not be right for you

It is almost impossible to ignore the importance of everyone’s favourite company, Apple, when analysing the market. This company is now some 20% of the Nasdaq and also a huge chunk of the S&P500.

  

Recently I have received a lot of comments from clients in regards topping patterns in Apple as well as the global indices such as the S&P500 and the Eurostoxx. These are very valid points raised indeed and I can’t refute what looks to be like clear Head and Shoulders patterns.

However, I have also often said in the past that some of my favourite trading setups are “failed” patterns.  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! The crowd is positioned in anticipation of the trading pattern and when this fails to play out, they are forced to unwind on mass leading to a sharp move. It could be argued that this happens more frequently, in a perverse way, as Technical analysis has gained increasing popularity thus more traders are piling into the same positions.

I wrote about this in a previous blog post here: http://fpmarkets.blogspot.com.au/2012/08/the-most-important-rule-in-chart.html.

Apple has triggered a valid Head and Shoulder pattern but will we see follow through? I thought this move would serve as an interesting example and experiment. Here is the chart:

Apple Daily:

Confirmed breakdown through the head and shoulder neckline. 

Note that the neckline is at the 650/655 level and thus I believe a number of traders would have used a close below here as a trigger. Thus where do you think their stop losses are likely to be? My bet is around 655/660.

Thus what I am suggesting is that any move back above 655 would be a powerful signal that the stock has bottomed and a powerful short covering rally may ensue. Short term traders could look to short the 650 level on this first retest and if it fails to sell off, quickly cover and go long if the stocks breaks back above 655. That’s just how I view things.

Here is the potential bullish setup I am looking at:

Apple Daily 2:

Price has sold off into the upward trendline and a strong support zone at 630/640. There was a bullish reversal candle out of here which implies a selling capitulation with buyers coming out on top. This could be the first sign of more follow through to the upside.

APPLE 60mins:
Nice bounce out of the low end of this channel. A retest of the recent lows could offer an interesting long entry. The key resistance level and breakout level is 650/55 as shown. 

So what does this mean for the broader market given Apples weighting? Well if Apple doesnt breakdown, then I doubt the market will. 

Here are the other charts of concern but ask yourself what would happen if they failed to play out? What would be the pain level for shorts if there was no follow through? I am not suggesting this will happen but just anticipating.

Eurostoxx Daily:

Double top and Head and Shoulders

S&P500 Daily:

A topping pattern forming?

Interesting times no doubt. For me, I think this is a potential buying area into a confluence of support. If it fails to hold then so be it. I would prefer to buy dips into the uptrend into key support areas than fight it for now. 

S&P500 Daily:

This is my support zone and buy zone coming into tonight 

Thanks

Austin

New Research Section

Very exciting developments going on at FP Markets. We have just launched a new Research section on the website and this will be free to all existing clients. There is also a 1 month free trial to non-clients so please do not miss out. You can register here: http://www.fpmarkets.com.au/research/register

In this Research section you will find first rate daily analysis and market commentary from yours truly :). There are reports that cover the broad spectrum of our products and include a Morning & Afternoon ASX Report, FX Majors, International Index CFDs, as well as Commodities. I believe this analysis will be of great value in identifying leading trade setups and enhancing your trading performance. I hope you will find a wealth of timely information inside this Research portal and it is a must for those seeking that “edge” in the marketplace.

I will continue to post on this blog and will try to keep the material educational in nature.

Thanks for all your support and hope you enjoy the work
Austin

What's The Setup Ahead Of The RBA?

My observations below should be viewed as general advice and may not be right for you.

The big event today will obviously be the RBA interest rate decision today at 2.30pm. The futures market is pricing in a 68% probability of a 25bps cut but no doubt this is not an easy call. Gun to my head, I would actually say that I don't think they will cut this afternoon. This is because the Central Bank has been given some breathing space due to the huge stimulus packages announced overseas, and they may want to see what short term effect this has on the economy, especially given the upcoming CPI and PMI numbers. Commodity prices and in particular Iron Ore have recovered strongly recently, and this was an expressed concern at the last meeting.

Whatever the decision, as a trader it is always important to have a plan and a set of scenarios or "what-if" statements. Obviously we just don't know how much the market has already priced in, and thus one must gauge the underlying price action relative to the news and the levels. To me, the Aussie has been correcting lower off the recent 1.06 highs and this implies a breakout to the upside in coming days. Furthermore, when I look across currency pairs, I see a number of bullish daily charts against the USD such as NZD and EUR. These imply continued USD weakness which should benefit the Aussie. The major levels and charts are shown below. A key risk to this scenario would be a solid break below 1.03 to 1.033.

AUDUSD Daily:
Restest of this key upward trendline. Thus this presents an interesting low risk area to look for bullish reversals. Any failure to hold here could be used as a potential breakdown trigger for traders in time.

AUDUSD 60mins:
The Aussie continues to grind lower in choppy fashion and into strong support at the 1.030 to 1.033 area. Note that this sell off from the recent highs has not been strong despite the market pricing in continued rate cuts. This is a sign of underlying demand I believe. The short term range is 1.030 to 1.045/1.047 and swing traders will need to see breakout ABOVE the latter zone for confirmation.

AUDUSD 15mins:
These are the short term levels I am looking at. A move above 1.040 could be used as a breakout trigger to the upside for short term traders. On the downside, traders could look for spikes into 1.03 for low risk long setups with tight stops, and look for shorts should the RBA cut rates and support fails.

NZDUSD Daily:
The Kiwi is in a strong Daily uptrend and has broken out above the recent highs. A Daily close above 0.836 is needed to confirm the next leg higher.

NZDUSD 60mins:
Price made a meaningful low at 0.8180 right on the ABC target. The move off the recent low has been strong and this could be the prelude to a bigger picture breakout in coming days.

In sum, today's RBA interest rate decision will be a key catalyst for the Aussie going forth and will provide some great moves for FX traders. A 25bps cut would be deemed bearish for the Battler but it is very tough to know how much of this has been priced in. Thus traders need to heed the underlying price action in relation to both the announcement and the levels. The setups here imply we could see breakouts to the upside should 1.040 lift. Bears need to see breaks of 1.03. It will be very interesting indeed.

Thanks
Austin

XMJ Bullish Follow Through?

My observations below should be viewed as general advice and may not be right for you.

Overnight Market Snaphot

 

US Equities got off to a strong start, buoyed by a strong rally in Asian markets on news that the People Bank of China has injected a record amount of liquidity into the banking system. Stocks brushed off a string of negative economic data to rally through the day with indices closing on their highs. This is strong underlying price action. Indeed, the estimate of second quarter GDP indicated growth of 1.3% which was well below the prior reading of 1.7%. Elsewhere, durable goods orders also showed notable weakness as new orders declined by 13.2% during August.  The S&P 500 settled higher by 1.0% whilst the Nasdaq 100 outperformed closing +1.44%.

Yesterday I talked about the strong bullish reversal in commodities such as Gold and Copper, and this proved to be a lead indicator for our equity market bounce yesterday. Overnight, Gold went from strength to strength with the December futures surging to make a high of 1782. Traders in Australia should note that Iron Ore was unchanged overnight and closed at $104.20.

Yesterday I wrote,

“US indices remain the strongest globally and as I have continued to stress, only a break back below 1420 would indicate that this uptrend is over. Thus, this 1425 to 1430 zone could provide a great low risk buying opportunity for traders coming into tonight”

There was a bullish reversal candle right out of the support zone and I believe this is now confirmation of a continued move higher with risk on a break below last night’s lows. The targets are up to the previous highs at 1475 and beyond to 1515.

S&P500 Daily:

Emini S&P500 December Key Levels:

Support Levels: 1435/1430

Resistance Levels: 1445/1450, 1475

ASX200 and SPI Analysis

My observations below should be viewed as general advice and may not be right for you.

My SPI Range today: 

4375 to 4420. Outlier level 4365/70 support and 4430 resistance.

My SPI plan today:

SPI futures closed at 4388 overnight after hitting a high of 4396. Fair Value is currently 4points and thus the XJO is indicated around 4392.

Well yesterday we finally got the strong bounce out of the 4340/50 support zone which was led by the resources. I had been anticipating this setup based on the XMJ chart as well as the strong support zones in BHP and RIO. As a trader you have to be prepared and wait for the price action to confirm the setup. I believe the bullish turnaround in the resource sector has some way to run still and yesterdays lows could be used as interesting stops points for long trades. I continue to focus on “quality” stocks that have formed strong base patterns that offer good low risk/high reward entries into the uptrend. These include AZH, AMX, BHP, MML, NHC, NCM, SFR, and STO amongst others.

Yesterday I said, “If this materials sector is going to hold in and bounce, this is the day and zone that it should do it.” I believe we saw this yesterday: http://fpmarkets.blogspot.com.au/2012/09/time-to-look-at-resources.html

Today there will be strong early resistance at 4395 to 4405 as per the SPI 15min chart below. This may provide some initial resistance. Traders who think this is a “dead cat bounce” should use this zone for potential low risk short setups when price action confirms. However, given the strong bullish reversal yesterday, I am looking for potential low risk buy setups. There should be good initial support on any weakness in the low 80s. If there is no weakness, look for breakout trades ABOVE 4405 targeting the previous highs up at 4420 and beyond. Note we are coming into month and quarter end, and there may well be some strong window dressing coming into this.

XJO Daily:

Bullish reversal candle right out of the upward sloping trendlines. 

SPI 15mins:

This is the early resistance zone today. Breaks of 4405 open up a retest of the previous highs. 

OZ Stockwatch

Eco Calendar:

11.30am AUS    Private Sector Credit (MoM and YoY)

Corp Calendar:

MTU: Ex-Div

SGM: Ex-Div

Analyst Rating Changes:

ORE:  Cut to hold from speculative buy at Byron Capital Markets; PT A$2.40

News:

BTU: FY loss widens to A$21.52m from A$13.48m loss yr ago

CTX: The company confirms the Kurnell refinery closure in 2014

EGP: Larry Mullin has been ousted as the chief executive of Echo Entertainment Group, with the casino operator attempting to repair its rapport with the New South Wales government. The move shocked some of Echo's institutional investors.

ORG: The company and Conoco are starting a process to sell APLNG project stakes. (AFR)

SDL: Trading Halt

Technical:

-Price/Vol scan and Bullish price action: AZH, BHP, BUX, CBA, MML, NCM, RIO, and SFR

-Upside Breakouts plays: AWC, AZH, AUT, CBA, MBN, NHC

-Downside Breakdown plays: AAX,

Stock Charts of Interest

Please feel free to contact me if you would like help or assistance in interpreting the graphs below. You can also follow me o twitter @FP_markets for live commentary throughout the day.

XMJ Daily: Retest of key trendline

Breakout and retest of this downward sloping trendline. This should be a significant zone of support and potential reversal area. 

BHP Daily: Strong base pattern and confirmed breakout

Breakout from a strong base pattern and retest of support. This is a great low risk setup for those looking to join a possible new trend higher. A risk would be on a close back below 33.00

NCM Daily:
Retest of strong support at 27.50 to 28.00. There was a bullish reversal yesterday and this could be the beginning of a retest of the recent highs at 30.00 and beyond. 

CBA 60mins: Breakout trade

CBA broke out strongly yesterday above the 55.50 zone. This opens up a potential retest of the previous highs. 

AUDUSD 60mins:
Price has broken out above this downward trendline and recaptured the 1.04 zone. This is a sign of genuine strength and a short covering rally could fuel a move back into 1.0520 and beyond. 

If you would like to chat live and interact daily with a Senior FP Markets trader, please go to http://www.cfdtradersedge.com.au/. In his lives chat room up to 50 full and part time active traders share market observations throughout the trading day. This is an invaluable source for active ASX traders.

 

 

 

 

Contact:
Austin Mitchum. Senior Market Analyst

First Prudential Markets

Email: a.mitchum@fpmarkets.com.au
Office: +61 2 8252 6800 Ext 120
Mobile: +61 0431547026

Are Currencies A Lead Indicator?

FX Report

There was some very interesting price action in FX markets overnight. Indeed, despite a strong breakdown in European equity markets and a weak US trading session, the Aussie and Kiwi actually traded higher! This is bullish price action to me and indicative of a potential turning point ahead. The Euro was the fly in the ointment as it broke down through the 1.29 level on continued uncertainty about the health of Spain as pressure mounted on the country to seek international assistance to face rising borrowing costs. 

From a technical perspective, the recent pullbacks in the Kiwi, the Australian Dollar and the British Pound all look corrective to me off the recent highs. This implies breakouts back to the upside in coming days. Please look at the charts and the setups below for possible triggers. A move back above 1.29 in the EUR would also be a very encouraging development and imply a failed breakdown.

Yesterday I said that I didn’t have a clear setup in the Australian Dollar in the short term. No doubt, the bigger picture chart still looks very constructive to me if we can breakout above 1.06 but we are obviously yet to see this. Sometimes, it is important to step aside and just wait for more information rather than force trades. Overnight, the Aussie hit the 61.8 Fibonacci support level shown and looks to be building a solid base. If price can regain the 1.0430 level as shown in the chart below, this would be a sign of strength I believe.

AUDUSD Daily:
The Aussie remains within this bigger picture sideways and consolidation pattern. However, there was a possible bullish reversal out of this upward trendline overnight. A breakout above the 1.06 level would confirm a bigger picture move into 1.10 and beyond. 

AUDUSD 60mins:
The 1.0340 long scalping level I highlighted yesterday worked well for short term traders. The whole move off the high looks like an overlapping wedge and thus potential breakouts to the upside are around the corner. A move back above 1.043 would indicate a more meaningful turn to the upside. I believe there was a lot of traders who sold this pair on the breakdown through 1.040, and they may well be forced to cover adding fuel to a rally should we see further strength.

NZDUSD Daily:
The Kiwi remains one of the strongest pairs globally against the USD. This strength is shown by the breakout above the downward trendline and the previous swing high Furthermore, all the moving averages are sloping upward thus traders should look for continued retracements back into this strong trend. 

NZDUSD 60mins:
Price is retesting the previous breakout zone and this offers a potential low risk entry into the trend. I think the corrective move off the high is complete with a low at 0.8180. Thus traders could look for breakout trades to the upside with stops below this level. 

EURUSD 60mins:
Yesterday I said that “the EURO is still holding the 1.29 level but is looking increasingly vulnerable to a breakdown. Traders could look to sell on breaks of this level with tight stops targeting 1.28”.

Price did breakdown but there has been very little follow through to the downside. Thus a move back above 1.29 would be bullish indeed and imply a false break. Traders who are short could use breakouts above here as a potential stop level.Note the bullish momentum divergences in place i.e. price making lower lows but momentum not following through. This implies a potential trend change.

EURJPY Daily:
EURJPY has entered into a very interesting support area to me. Clearly this market has transitioned from downtrend with lower lows and lower highs (as shown) to a new uptrend. This new uptrend was confirmed on a move above the June highs. Thus, this pullback into the upward trendline and moving averages should be well supported and offer a potential low risk entry into the uptrend.