US
Markets
My
observations below should be viewed as general advice and may not be right for
you.
US Indices
were rangebound for most of the trading day, but a breakdown through intraday
lows late in the afternoon led to a rather sharp selloff. The major averages
saw a notable divergence as the Dow slipped 0.4% while the S&P 500 and
Nasdaq slid 0.6% and 1.0%, respectively. Technology stocks lagged, in
particular Intel which slid 3.8% as it remained under
pressure after lowering its guidance on Friday. Apple
marked a fresh all-time best at $683.29, but reversed into negative territory
and ended down 2.6%.
From a
technical standpoint, price has clearly broken out above the Double Top zone and
recent consolidation pattern with good momentum. Last night’s pullback into the
previous breakout zone offers a low risk entry into this uptrend at support. When
prices make new highs in a strong trend, the highest probability trade is to
buy the first pullback looking for a retest of the previous highs at a minimum.
We are looking for a continuation of the previous trend. Two
outcomes typically follow:
i) The retest will either fail at the previous high in which case a
small profit can be made.
ii) A whole new
continuation leg begins beyond the previous highs.
At the very least, one is
offered a very low-risk entry point with several options for exiting thereafter.
The basic principle is that a short term trend will tend to resolve
itself in the direction of a longer term trend. Two different cycles moving in
the same direction create a condition called positive feedback. This in turn
creates powerful, explosive moves. This is a central message I learnt from Linda Bradford Raschke, one of the "Market Wizards" interviewed in Jack Schwager's series. Targets for this move
are up to 1450 and possibly beyond. Only a break back down below 1395 would put
the uptrend in jeopardy.
No
doubt there are some warning signs as ever given the strong reversal in Apple;
EUR at strong resistance; and the DAX trading at its previous highs and
resistance. However, all we can do as traders is following the trend until
there is a clear climax or distribution pattern. This is not the case currently.
The
key event this week will be the FED policy statement on Thursday.
S&P500
Daily:
Breakout above consolidation and the Double Top zone.
This next technical level is 1450. The trend remains up and Fridays candle was
confirmation of a new kick off move higher.
Emini
S&P500 60mins:
Price broke out of a tight consolidation pattern with
strong momentum. The overnight pullback into the previous breakout zone of
1420/1425 offers a low risk entry into the uptrend, with stops below 1415.
Emini
Nasdaq 60mins:
Pullback into great support area and low risk buy area.
Traders need to buy support first, and sell it if it fails to hold.
S&P500
Emini Key Levels:
Support Levels: 1425/1420, 1410
Resistance Levels: 1450
Europe
Euro Stoxx 50 ended 0.4% lower at 2528.53, having traded
in an 18-point range. Investors paused ahead of the FOMC rate decision, the
German constitutional court's vote on the ESM and Dutch general elections, all
this week.
From a technical
standpoint, I have shown significant resistance zones in both the DAX and Eurostoxx
Daily charts. These were broken with genuine strength on Thursday. Clearly the
2400 level in the Eurostoxx was strongly defended and this opens up a move to
the previous highs up at 2600. The DAX is testings its previous highs here but
I believe it will be only a matter of time before it breaks above this level
given the movements across asset classes.
Eurostoxx
60mins:
Pullback to the previous breakout zone offers a low risk
entry into the uptrend.
DAX
60mins:
Breakout above the consolidation pattern. Traders should
now use pullbacks into 7100 to enter into the uptrend, risk on a break back
down below 7000.
FX
Majors
The Australian dollar fell for the first
time in three days against its U.S. counterpart amid a decline in risk appetite
as China’s industrial output rose the least in three years and investors
expressed concern whether Europe’s debt crisis is being contained. Australia’s
currency depreciated 0.5 percent to $1.0335 yesterday in New York. It fell 0.4
percent to 80.910 yen after reaching 80.88 yen.On Thursday I put out a very timely blog post on the Australia Dollar looking for a bullish turn out of the 1.02 support zone: http://fpmarkets.blogspot.com.au/2012/09/audusd-and-employment-numbers.html. The first target for this bounce was up to 1.035/1.04 and we have now hit this zone. There may need to be some time for consolidation before a new push higher. Pullbacks into 1.03/1.0320 should be strongly defended now and offer a low risk entry into the trend with stops below 1.03. Breakouts above this 1.04 zone open up a retest of the 1.06 level in time.
It is interesting to note that EUR is trading at short
term resistance at 1.28 and slightly beyond my original target. This may lead
to some USD strength in the short term. However, bigger picture EUR has clearly
transitioned from downtrend into new uptrend as the charts below illustrate. I realise
that the European debt issues are ongoing but clearly the price action is
telling a different story. Quite simply, price has now made a higher high and a
higher low which implies a clear trend change.
AUDUSD Daily:
Bounce right off
the support zone. Note 2 strong back to back bullish candles.
AUDUSD 60mins:
Price
is now testing the first major target zone for this bounce. Traders should look
for pullback into the trend for possible long setups
EUR
Daily:
Price broke out of this long term downtrend. It takes
time for markets to transition from downtrend into new uptrend and we have seen
a base pattern form and now we are testing the previous major swing high at
1.28. A close above this would confirm a new trend change i.e. higher highs and
higher lows
EUR 240mins:
Base pattern and breakout into the 1.28 projection area.
This may provide some short term resistance.
Commodities
After a recent strong run, Gold for December delivery
declined $8.70, or 0.5%, to end at $1,731.80 an ounce on Comex. The pullback
looks corrective and thus traders should continue to focus on following the
trend and buying into supports
Gold
Daily:
The targets for Gold remain up at 1780 to 1800. Note the
strong run up candles which are indicative of a strong trend.
Gold
60mins:
This market continues to trend higher with higher highs
and higher low.
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