Return of the Volatility
Wow that's some week, the past week has seen some of the craziest moves in FX for a long time, the JPY crosses moved to some extremes, the focus was on the USD/JPY, but equally the CAD/JPY, AUD/JPY and NZD/JPY were equally insane.
Let alone the 35 handle ES puke in globex.
Sadly the moves and volatility came off the back of the crisis in Japan, whilst as traders we thrive on the volatility, I personally don't want to see the markets move on the back of a natural disaster such as what is happening in Japan at this very moment.
It brings me back to the sadness that was 9/11 and how the markets reacted around that period of time, generally on events like that, the markets end up doing crazy stuff and although it creates many opportunities and as traders that's the environment we thrive on, equally there is also a lot of pain involved for traders that are on the wrong end of the trade.
The bid less situation in the JPY crosses earlier in the week, no doubt would have triggered tons of sell stops under the market, but without a bid it went into freefall for a while, but I suspect traders also got margin calls on that move, as the spillage would have been huge on a move like that, the markets simply don't trigger at your stop, it has huge spillage, and that's where the damage comes.
Then having wiped you out, it's hard to see the markets eventually come back, that's the price action which breaks accounts.
I suspect we are going to see more of the same, as the markets enter into a period of volatility.
Well having pushed under our globex area (eg 1280SPX approx 1276ES) the market made its choice and we had to abandon any near term bullish idea and we had to look on the short side, although, I am sure many were looking for crashes on the open on that huge gap down earlier in the week, however I expressly told members that this is where the market will likely trap many, as too many will "sell a hole".
Selling a hole is a big mistake, very rarely on such a gap downs will it continue, I remember many 30 and 40 gap downs in the 2008 period, where they simply got bought on the open, as the shorts cover their positions and it's the crash traders that sell at the lows, whilst savvy traders wait for price evidence generally within about 10-15mins to see if a trend day or not.
We have at this time 3 working ideas, and depending what happens on Sunday/Mondays globex session should give us the edge.
The bears need weakness in the European session and a gap down would help, like wise a gap up above 1290-92ES will have the bears in trouble and potentially force the "squeeze".
Earlier in the week we had a target range of 1276-84ES for a bounce for any bearish idea to stall out, the likely count from a bearish perspective is probably a 4th wave from the Feb 2011 highs (although maybe a small degree wave 2 if very bearish).
The bullish case is a completed ABC correction as its still only 3 waves from the FEB 2011 highs, it's what happens at the 1276-84ES area that we are currently are interested in, failure to move above 1286ES is a weak bounce, getting back under 1276ES is what the bears want to see, so come Sundays open we are watching intently to which way will price rolls.
As we have 3 working ideas we simply not fussed which way it wants to move, as we still have a trade regardless, as having options which negate or confirm its what it's about, keeping us on the right side, if an idea is negated we will simply switch, we don't claim to have all the answers, we simply come up with a new idea if an idea is negated, we simply continue to look for low risk entries on ideas.
I had being mentioning this area to members all last week, as I still continue to think it holds a key or is going to help decide if bullish or bearish from here. The area is 16.33-16.37, as you can see the market has now back tested it as resistance after confirming is as support, so a rejection is indeed a negative point for any bullish case, the bears need that area to hold as resistance.
So the early part of next week should be interesting, gap over this area are in a big way I suspect will force the bears to cover, equally failure to get above this area is a weak sign and bears are in control of the move from the Feb 2011 highs.
FTSE & DAX
The clues appear to be coming from the European markets. Both are considerably weaker, and presently still suggesting a 4th wave bounce, so Mondays European session needs to see a flat to a weak session as that will help any bearish case as a 5th wave will still be needed to confirm a 5 wave impulse from the FEB 2011 highs.
Bears need weakness on Monday's globex session or a gap down, the bulls need to see European markets push higher that in turn will lift globex and above 1286ES is a clue that the bulls might start a squeeze higher with 1290-92ES helping the bulls.
Staying under 1276ES (SPX 1280) is a weak trend and helps the bear case.
As globex is 24hrs it also helps to watch the 2 most influential markets in Europe, hence the FTSE and DAX wave counts.
Going into next week the bears need early weakness and to stay below 1276ES, the bulls need above 1284ES then push above 1290-92ES.
If we were to see a new low and a 5th wave down from the FEB 2010 highs, I suspect it should also see a divergence as price would push lower but the VIX fails to put in a new high, that's something to suggest a 5th wave if we do see prices weakness from Mondays open and head to a new low, with support being towards 1220-1240SPX.
Of course if we see a gap up on Monday and price is bullish that will render that idea as invalid.
Moving Average Crosses
There is a bearish cross potentially setting up if more sustained price action from here of the 20DMA and 50DMA.
With a cross of the 10DMA over the 20DMA & 50DMA all that is needed is a cross of the 20DMA and 50DMA and a new low will confirm a 5 wave decline. That suggests something important was made at the FEB 2011 highs and whilst we initially were bullish above 1280SPX, a 5 wave decline from the FEB 2011 highs is something that needs respecting.
Under the radar there have been some huge moves recently, and some are likely not even on trader's radars.
Cocoa, I have been tracking for a few months, and just before it pushed to a new high I had a target window just above.
That's likely to be a multi-month or even a multi-year high, and the reversal is what you would expect to see from an Ending Diagonal, as the longs are forced to liquidate, this should be an extremely fast move lower.
Another market that showed a potential reversal was Coffee, and looking closer there appears to be a 5 wave impulse which is a good sign for any bearish case, the target is around 28250 somewhere around the 50-618 retracement areas. Then I am expecting to see a reversal if indeed a more bearish case is setting up.
Both Cocoa and Coffee are not something I generally post or keep track off, as FX and Equities is my specialty but occasionally if I see a pattern emerge, I make it known that that it's a setup and some members potentially could trade the idea if they have access to those markets, it just shows that there is opportunities out there if you have access to these markets.
I personally prefer more liquid markets such as FX and the ES contract. As do I suspect many other traders, although there have been plenty of opportunities of late in many markets, as long as they keep throwing up ideas we will continue to trade them.
There is many more markets that looking are looking ripe for a reversal, the EUR crosses look good from this juncture as we see evidence of the EUR/USD and EUR/CAD pairs reversing. We are just waiting for out trigger points to be hit on a reversal. Those are reversed for members as I can only show so much in these pages.
Until next time have a profitable week ahead.