Market Report: The Beat Goes On

By: Nouf | Sat, Sep 3, 2011
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SPX

This market just gets better and better, you simply can't ask for a better market to trade, its throwing up huge moves to the traders that are doing their homework and actively looking for ideas, FX is where it happened this week, although I left readers with an objective that needed to be seen from the bears early on Sunday/Monday for stocks, once the initial move was seen on Monday, stocks really did not move much and continued to squeeze the shorts that were trapped.

Going back to last week's article I wrote:

"The key will be seeing early weakness in globex on Sunday/Mondays session and ideally a gap down needed, failure to see weakness could trigger a bigger problem for any shorts that are thinking the recent tape is that of a triangle."

The bears never got the gap down or even saw the weakness needed for the triangle idea, the market held above our key 1163ES area and then held 1175ES. That right there was a big issue for the bears, and we knew that we needed to be getting long above 1175ES, or at worst staying flat and looking elsewhere for ideas to trade, we definitely did not want to sell the market as it obviously had setup a trap with so many traders likely positioned for the triangle idea and expecting a move lower, the market had created a nasty trap and forced the bears to cover those shorts early in Monday and continued to melt up higher for the next few days.

There was no clues to risk being sold in the AUD crosses and oil was getting a lift, you also saw weakness in the USD/CAD pair, combined together, that was telling us not to sell the market, but I suspect there were many non believers all looking to throw themselves in front of the freight train.

Regardless of your bias price action is what counts, you may be right on the direction in a larger time frame, but the objective is to make money and protect your account, not go against the trend, can you survive a 60-80 handle drawdown?

I posted this chart to members last week, and it was a concern of mine that we had truncated and the market was about to push higher and set up a trap for the shorts.

SPX, DOW, NASDAQ, RUT and Transports
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You can see already some big name stocks had already put in 5 waves and reversed, hence I was thinking that the market had put in a trap for the shorts, I raised this as a concern to members in my weekend update, that if we never saw any weakness on Sundays/Mondays globex ES session, that the bears/shorts were going to be in trouble fast.

I even spoke about it in last week's article, the fact that we held above 75ES in globex and never looked back, had us looking higher as it was clear to me what the market was doing, we needed to be buyers or stand aside.

Standing aside till the market had run its course was the far safer trade for non aggressive traders, as we needed to see the shorts taken out 1st before the resumption of the downside could commence.

By the end of Wednesday close I had a feeling the shorts were pretty much taken out and forced to cover, the pain I was reading around twitter and other blogs was suggesting that the shorts had started to fold.

You can always tell when traders are feeling the "heat" it's where the level of abuse around the web gets to a point that's its virtually telling you that price is nearing a peak especially on a short squeeze as you saw last week, it's a great indicator and I like to keep in touch with retail blogs and twitter, as it gives me a general direction of traders thoughts.

I also felt that I needed to be looking for a high, or signs of a reversal, so I got to work to look at some ideas.

I posted a couple of charts to members on Thursday before the open and we needed to see a pop higher in one chart as we were looking at a fractal of a couple weeks back.

SPX

The market popped into a truncated high, although the DOW put in a new high, but the market appeared to be following a similar script as the prior rally, the chart above is the prior 3 weeks of the SPX.

SPX

And the result is as expected and what we were looking for, we knew that there was enough price action on the decline to warrant a serious reversal, all that was needed was the NFP to come in with a hot print to confirm it, although it actually puked even further, the damage had around been done in globex before the market opened as the ES was trading below our 1201ES key support area, so even if we saw a pop off the NFP report we were going to sell it anyhow.

I suspect now the next move lower is about to commence, although there is other options, from what we have seen, we tend to think the bear is back in town and he just took a nap for a week and woke up on Thursday.

NYSE McClellan Oscillator

The conditions were extremely overbought, so the shorts pretty much had been forced to cover, and another clue that the move had I suspect ran its course.

Both charts were shown prior to the move as early clues once we saw some evidence of a breakdown under our key support areas.

We were not interested in top ticking, we just were waiting for clues to a reversal, which we have, and getting short again. As the past few weeks I suspect was just a correction against the major trend which is down atm.


XLF

We were also watching a setup in the XLF for a clue on stocks to reverse, as we were also working the prior fractal chart as well as this setup on the XLF, I also felt the XLF needed one more move higher before a reversal could be seen.

XLF
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Well another chart that speaks volumes, not only did we get the pop higher, we also got the reversal

XLF
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So this is where looking at other markets and indicators to see what they were suggesting, gave us the edge to the market, and whilst I suspect most were looking to cover and get out of shorts, we were looking to get into shorts as the conditions looked perfect as we had the NYMO Osc on extreme overbought conditions, we had a great looking fractal on the SPX as well as a working count that needed a pop higher and reversal on the XLF. Now that's a great plan and worked out well.

It doesn't always go as smoothly as that, but that's what we do at Wavepatterntraders.com. We look at various markets and try to build a picture, so we can work out good areas for the next trade.

It was not just stocks that setup some great trades, the EUR crosses took a nasty hit this week, as well as that GBP/USD idea I posted in last week's article


GBP/USD

GBP/USD
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From our target zone we were looking for a big reversal and a great setup that so far has yield over 300 pips and I think it's got more to come.

I left readers with these comments from last week's article.

"From a short term perspective there is a great looking setup and one that could signal more downside if a rejection under 16430-16475."

The high was 16453, right in the middle of our target zone, and over 300 pips lower.

GBP/USD
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Short term could be a couple ways to work the near term idea, but overall staying under 16350 I think is going to see more sellers hit the tape and a test of the 160 area will be seen. Only an aggressive move above 16350 would get me cautious about looking lower.


EUR/USD

It finally looks like the EUR/USD pair has made its move, although we were quick to spot that this pair struggled on a few attempts to get above the 14515-14550, even so far as back as last week, this pair could not get above that area, that was key for us, as this count has us looking lower and a target of seeing sub 138.

It now appears that we could be seeing that 138 area.

EUR/USD
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So I suspect going forward there will be some more weakness for the EUR/USD as the bulls failed to get above 14515-50.

EUR/USD
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It's going to need to see an aggressive rally back above the 144 area to start to think about a move back above the 145 handle.

These 2 pairs were just the tip of some of the great moves that were setting up this week, the CHF pairs had a great reversal that we were following, as well as the EUR/JPY pair put in some good moves that have yielded just under 300 pips from our target reversal area.

You can read about those ideas in the before and after section of the site. There you will find some examples of my work.

Click here http://www.wavepatterntraders.com/index.php?/forum/179-before-after/


Conclusion

The bear appears to be back in town as we are already in our bears suits, although there is some other options that we are following, I tend to think that the bias is still down and the next leg lower is about the start, should the market surprise us we will of course need to reverse to some alternative ideas, but from what we have seen so far, we think some impressive moves are coming in September after the boyz come back from the Hamptons.

Come join us, and take advantage of what the market is setting up.

Some of the FX markets are throwing up some crazy moves and the traders that are staying on top of these moves are having a great time trading these conditions, these markets are where I raise my game and I produce some of my best work.

If it moves I can count it.

Until next time.

Have a profitable week ahead.

 


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Nouf

Author: Nouf

Nouf
www.Wavepatterntraders.com

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