Anyway, I am back at the desk and have quickly put some analysis together. I want to emphasize that the events of the last two sessions are very hard to interpret and this volatility can, and will, likely work in both directions. Also, I do not "buy the Dubai" story. There are bigger things happening on the currency front.
If this is part of the correction process, the hourly charts will help us understand what to expect. Open this chart - which includes the opening 30 minutes..
The chart features several technical studies, including:
1. The yellow up channel which has been in place during this last rally leg.
2. A fib grid showing the retracement levels for the last rally leg
3. The Overhang Supply Band in red which is formed from the price consolidation at the current reaction highs.
4. Key Support/Resistance levels in yellow and red
Before we get into the discussion, let's all watch volume. This is a holiday week and volume is extremely low. This does raise questions regarding the strength of the move (or reaction to the move).
OK, first we observe price action and look for any symetry and clues in the mirror side of the current move. One thing I notice is the completion of a double top that formed over the last 10 trading sessions. Not bad in terms of technical qualification. A double top forming over ten sessions with decreasing RSI - this is especially supportive of a correction when considering that this top is the fifth top in a weakening series that started in July. Further examination of the symetry suggests that we should find support at the 1085 area and have a pullback to the 1100 area. This also makes sense, as that would bring us back up to a retest of the bottom trend line of our up channel. It would also be the last line of resistance to the upside. I would not be surprise to see a test of the line - though the overhang supply is heavy and it may not happen entirely today.
Now, looking at the Fib grid, we see a 38% retrace would test the 1081 level at point A. We almost had that test in the open and are seeing an expected pullback. If we see another test of that level today, after a pullback to perhaps 1095, that would most certainly open the possibility of 1071 at point B by the close. I say this because there is very little congestion between the 081 and 071 levels and reversals after failing to move through overhang are often followed by panic selling. The road to 061 at C will be harder, as there is congestion there and we all remember the major buying and selling that occured at that level by institutions. The good news is that a break of 061 will bring the big test of the 029 level at D, which is the full retrace of this rally leg. This is a must for a trend reversal.
The real story is the currency market. Wednesday was absolutely insane. It included a massive spike in the EUR/USD, a massive dip in the USD, followed by an immense reversal. At the same time, Japan is likely intervening on the JPY. I am not sure what to make of these swings - but I can say the dollar is abiding by the major down trend line that I published several sessions ago. Amazing how it ran down to the bottom and back to the top in 2 sessions. Again, I am not sure how to read this - but that is the story, not Dubai.
5 comments:
Note, the post was made about 30 minutes into the session. It does seem to have played out as expected. We did get a pullback near the 1100 level, but we did not test the bottom trend line of the up channel. Also, we stalled in congestion as expected and saw some selling into the close. The slow rise after the open may be the A wave of the ABC correction. It is clearer for me on the 15 minute ES chart. We'll see on Monday if we continue the end session down move - which could be the B wave.
Overall, I think we saw the firt of several sell waves to come as we close the year. Folks are starting to lock in the profits. No fund wants to be the last one out the door this year.
I always appreciate your analysis David. Monday looks "up" to me.
Hi David ,
I was wrong it was a boring season today. Also made no trades ,
Good call on your market open TA, we did not have enuff hours for the rest to play out today .
On the Es , you can count 5 waves down to 1067 ( what larger wave that 5 waves is just a guess for me
We have 4 waves in the up from 1067
What that 4th wave is should tell us something, unfortunately the truncated day will hold onto the mystery .
The only thing fer sure is , as you pointed out a Double top in SPX and a tipple top in the ES.
And the $ is the Key to those holding .
Have a great weekend , Thanks for the great TA .
David , This is from EWI , I think they are saying the same thing you are about Dubai
The Persistence of the Exogenous Causality Fallacy
Last month we pointed out that conventional analysts frequently use exogenous events to explain changes in social mood. This tendency was on display again on the one-year anniversary of the Lehman Brothers bankruptcy. Newsweek reported that the bankruptcy 'seemed to be the direct cause of serious problems [in the financial sector].' USA Today printed a chart of the DJIA from September 12, 2008 to the present, with many economic events listed as 'causes' for the market’s gyrations; it also made the case that the Lehman bankruptcy triggered the financial crisis.
These reports somehow overlooked the fact the DJIA (and social mood) had been in decline for 11 months before Lehman’s bankruptcy. Did Lehman cause the financial crisis? No, its failure resulted from a trend that had already in place for between one and three years, based on graphs of stock and real estate prices. The bankruptcy was a result of the negative social mood, not the cause.
Payline,
Indeed you are correct. I always try to disconnect the news from the charts. They are both interesting, but trying to match them in technical analysis is distortion.
The news media has a job to do. They want to explain it all in terms of something. They feel compelled to provide sound byte rational to a sound byte hungry crowd. Think of how many conversations that have taken place in the last 48 hours about how Dubai screwed the markets. Mean while, the RSI of the market has been weakening for months - the tops have been rolling, the dollar seems to be finding support at the bottom, and only a fool would ignore these facts. It is funny, yet sad all at once!
I did not like the violent moves in the EUR/USD, USD and USD/JPY. Much less than orderly and difficult to explain the velocity of what happened in technical terms. I did some paper trades around the price action and would have done very nicely - just not confident enough to enter contracts yet. We'll see next week. I'll have a new post tonight on the ES and the USD.
Have a good weekend!
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