By: Nouf | Sun, Feb 27, 2011
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Well what seemed like an eternity, the markets have woken up somewhat, although some markets have gone to extreme levels in craziness i.e. gold, silver and oil in recent days.


With an impulsive start to a potential correction that started the past week, and a rebound which hit our magic target cluster, the market is poised to make a choice early on Monday. One way or another early on Monday, if not via globex in the European session, the choice should be made easy to trade the direction.

A gap down, should confirm the next move, back under 1310ES will help the bears, a gap up above our key 1325-27ES area, will likely see the ES rally higher as many bears looking for the big move lower once again will be trapped, so the choice should be made early with a special interest in the European session via globex.

We are currently working a potential impulse, and having hit our target range on Friday, we wait with anticipation to see what the market wants to do, there is a very low risk setup, as long as the 1325-27ES cluster is not take out with any aggression from the bulls, if so then the bears will need to cover as a new high beckons.

However if the bears can reverse the tape from the 1325-27ES area or just under, then they need to push this under 1310ES, and start the next wave of selling, and a clear and obvious move will need to happen, not a choppy decline, or the bears are in trouble, as the bulls will likely pick up the slack and run with it to new highs and surpassing the 1325-27ES area.

The tape is at a juncture which the direction from here will make the next trade an easy move, so we are taking a keen interest in globex and what happens at our key resistance cluster areas come Monday.

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A potential clue is the reaction to what happens in the XLF, we had the resistance cluster painted in as a target, and the market left us right into the target on Fridays close, so another market that will make this an easy trade to follow, either the bears reverse the tape from here, or the bulls run with this tape and a new high beckons, it's pretty much that simple now, and we are ready to jump on the next move.

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Of course we can always keep this simple as well with a test of the trend line that broke down earlier in the week. Sometimes TA does not have to be that complicated, a back test of the 10DMA and this trend line around 1325SPX would make a great retest and failure target, although we also know that if this pushes above, and the pit are not net sellers that will further add conviction that the tape is on its way to new highs.

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For those that follow the VIX with the standard bollinger band setup, it gave a equities buy signal on Friday, (although I use it slightly different to most traders) and its quiet a rare occurrence that it seems to fail, but we are also watching to see if this is a pullback to test the trend line it broke above before mounting a move higher, seeing the VIX loose key support and getting back under the trend line won't help the bears.

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However a key setup that I noticed back in April 2010, was the failure of that signal and holding the blue support area, as you can see the VIX is poised so far to hold that area, of course a failure to hold that area should confirm that the markets are indeed pushing on higher, but if you look left you can see that the market pulled back to the blue support area and then rallied with confirmed a downside move in equities.

So again a key component going forward early next week, and we are eagerly watching to see if either globex gaps ups and pushes the VIX under the blue support area, or indeed the market holds this area and sets up a big push higher in the VIX.

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A clue might come from the DAX, it's been one of the weaker markets on this current decline, and it too is poised to send a message, and depending how it responds early on Monday should help on the ES direction in globex.

With only 3 waves, the strength of the current bounce will tell us a lot going into the US cash session, a strong move that pushes above 7260, will also lift the ES in the globex session and create problems for the bears on the US markets. So it's not just a case of counting the US markets, it's a case of looking and building ideas for other markets that are in sync with the US markets.

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So next week in both FX and equity markets seemed to be poised more so now than the past 2 months, and I suspect some great chances to be had in the coming weeks, as long as the markets move we will be there trading as many moves and setups we find that offer great reward/risk.

Until next time.

Have a profitable week ahead.


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Author: Nouf


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