Sunday, 25 August 2013

Welcome back... (Continued..) Are you ready for it ? Whatever "it" will be!

For many years the end of Summer and onset of Autumn has often  proved to be a significant turning point in major financial markets but due to a number of both macro and technical reasons I have never quite anticipated and looked forward to a September as I have this year in 2013. There is a tangible atmosphere hanging over the markets as to where we go from here and not just concerning the big QE threatened easing question of which we all wait with baited breath to hear of from the Fed in September. From talking with colleagues we are all conscious and mostly in agreement that this year seems unusually tense and nervous. One thing I can be 100% sure of is that we cannot tell what direction markets will take next month and onwards towards the end of the year, however we can make valid and coherent assumptions and plan for one of two outcomes- either upward or downward movement. It seems most unlikely that the third option ( that i just failed to list as an option !) of consolidation and sideways movement will be all that Autumn 2013 delivers but one cannot be 100% sure, but it remains unlikely.
  Whatever new trend awaits we also know it will be irrational (to some degree) until the financial community and press work hard to come up with a story to clothe it in that makes financial sense.It's the old analogy of painting the bulls eye round the already shot arrow on the barn door thus giving yourself a bulls eye shot/score to show your friends and family. I do not really care to think, let alone list how many variables that could effect the market. That's even before we start pulling our hair out just thinking how many potential International News stories over conflicts, distasters etc. Then we have the current underpinning fundamentals of fair to middling recent US and EU/world financial economic data, Rising US (&UK) home prices, record low rates that have political will behind them to remain low (a worry in itself) plus the monetary policy at the heart of all this and the resulting fall out from this such as asset inflation. Are we going to buy the "Green Shoots of recovery" argument?
What will give me the leading edge is price itself. This may sound glib but what i mean is that I cannot recount how many times I have sat in front of the screen watching price sidling along sideways within PitchFork and usually at a critical level ( either a upper or lower Median line parallel or reaction line in a big fat time frame)  and then watched as the stimulus for a break up or down comes as from economic data releases or similar news. With hindsight it then all makes sense and we all nod our heads in agreement pat each other on the proverbial shoulder and tell each other how clever and correct we are. The point is we do not need to expose ourselves to needless risk. All we need to do is identify a new trend and once it's off and running and hop on board as per the trend of earlier this year such as USDJPY and Emini S & P. But this year I can smell and feel a certain amount of fear. With US and many equity markets not far off thier all time highs from this summer the prospect of further unlimited upside potential simply feels less probable and thus existing profits and all those big fat basis point gained are threatened. Greed is of course what these markets are about and I often look back a few months later at my own greed (such as my Long ES on the 28th May this year when I was convinced we would sail on up through 1700 and was already thinking of  the profits and forthcoming brokers cheque/wire transfer i would soon be receiving! I was fortunately stopped out but it was my pride rather than my account balance that took a hit plus that dangerous feeling that I actually know where price is going ) and am amazed at my expectations. Yet here we are nearly exactly 3 months later and I am still trading the ES from the long side and even while writing this cautionary tale and looking at the ES chart in just about every way it can be viewed still remain of the view that we have the potential for more upside and 1745 to 1750 being an important pitchfork objective.
The point is that although there is cause to be concerned on many levels I never forget that  important money managers who shape trends and the supply/demand for stock will always look favourably upon any economic situation that  is mediocre and their interpretation is always optimistic. Even with the winding down of QE and recent statements from the Fed  it seems that the market has overcome it's initial fears and now we are back to "business as usual". I have written before about the long mentality of Wall St and indeed the whole securities industry and the long mindset and how this is at odds with my professional background in other US futures markets during the 80's and 90's and the older and (hopefully) wiser i get the more apparent it is. This fact  having been said and me stating that nothing currently changes my opinion about trading the ES from the longside is exactly why i am nervous this September 2013 with obvious assets such as equities so over inflated.
To be totally honest the charts and simple Andrews PF analysis are still indicating higher prices. Let me show you these simple PF studies again especially in the light of last weeks bounce of the green ML seen below. The upsloping green fork is anchored off the June 2012 low which cannot be seen in the daily chart below. This fork has already proved itself as we bounced off its LMLP back in late Dec 2012 as part of the QE3 impetus on price.

Remember the blue pitchfork expresses the relationship between three exceptionally important pivots that encompass the entire recent late 2012 to current 2013 leg up and we must remember price never touched its centre line and rallied upto the UMLP. A CL non touch is one good indicator of future market direction and this was no exception.. (A similar pitchfork can also be drawn off 27/March 2012, 4th June 2012 and the recent high on 22 May this year to give you the resisting line that fits like a glove - this fork is not shown here). Here below also we can see in more detail last weeks bounce off the green LMLP and of course price may loose some of it's energy and top out and return to this same line. I am also aware we may see a series of sideways small waves along this line with higher lows.More probable is a continuation of this trend upto the black pitchforks upper median line parallel in the high 1670's and then a series of bars bringing us back down for a retouch (possibly more than once as per the diagram below)

Here is one possible scenario in the 240 min chart although as we are approaching autumn one can suggest a more direct and violent move. The black downsloping fork cannot be ignored and thus the recent low at just above 1630 will be critical in the coming weeks. Again remember a non touch of the black forks centre line would be very bullish and horny for price.The angle of this fork and last weeks higher low on the green LMLP now makes the possibility of price touching this centre line less plausible but not impossible as this objective now lies much lower at 1530 as opposed to 1580 ( viz a viz trajectory of time and price).
Now lets look at a slightly more complicated study. Bit messy in the daily but

 Here in the 240 min its nice and clear

and another template
 and the detail
 Finally look at the long and short stochs in the B line window and the 2 x window...very bullish as is the daily view of these indicators
Conclusion: This market gives no hint of turning down yet and while this threat grows the long side looks wide open for at least another 80 big points. All eyes on the restest of either the black donsloping UMLP ( top charts) at 1675-ish or a restest on the green uplsoping ML at 1640-ish

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