Welcome to our morning briefing. Here we are reviewing short term setups ahead of the NYSE opening bell. If you are a scalper or swing trader then these setups may be of interest to you. As usual keep in mind that these are short term setups although they could be used as early entries for more longer term positions.
Once again the bears absolutely blew it last week as the tape was lined up for an grizzly homecoming party which was rudely cancelled without further notice on Friday afternoon. If you look at the daily S&P cash you can see how perfect this configuration was – another five handles or so lower and we may have seen a significant stab to the downside. Just like Argentina last night the bears can add this one to a long and growing list of ignominious failures.
The spoos are currently scraping 1970 which puts us near 1976 on the cash should we hold the upper BB line here until the open. Obviously my remaining short positions met their maker at my break even point at 1968.5. This is pretty much what we expected and given the probability/payoff ratio at the entry I would take this trade every single time. The way it is I eeked out a humble 1/4R out of this campaign – nothing to write home about but I think it was nicely executed.
On the setup front it’s very quiet on the futures side this morning. I was able to dig up three Forex victims and I’ll throw one out to you leeches. The NZD/USD has been pushing sideways in a triangle like formation but it’s starting to run out of rope as the 100-hr and 25-hr SMAs are closing in. Thus far odds suggest that the 100-hour will hold and thus I’m risking an R to be long with a stop below the moving average.
More below the fold for my intrepid subs:
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Today’s event schedule:
And here’s the spike controller for you Forex traders:
This is my theory of price action, in a nutshell. Nothing in markets is ever more certain than 65%, and low probability outcomes bring outsized moves. Everything exists in a positive feedback loop.
The FOMC stuff did SUBSTANTIAL technical damage to the bear case. Until today the highest probability was a weak rally running out of steam, painting an eventual retest, and giving the bears a chance at posting at least a week or two of downside, maybe more. That whole case is now in peril. Fortunately both Mole and I have been advising you to trade the long side the last four trading days, so in theory you should be unscathed.
The bears have a slim chance of wresting back control at the old spike highs. But it has to be said that that rarely works. Bearish odds for the next two weeks just dropped from 60:40 to 20:80 – this is game changing action. Let us have a look at the internals to see if there is any clues.
Breadth is strong and strengthening into the close. Close at the daily highs, very shallow pullbacks intraday. This is behaving like a move with more in it. So what about tomorrow? After a day like that where everything just falls in line you can usually expect a narrow range choppy shit day to follow. However if we view things in context, before yesterday seemed like an ideal shorting opportunity.
Those guys who shorted based on a fib level retracement or who are holding short from the big down day, or who actually got short *after* the down-move was over – they are all in a world of hurt. They have to cover, and therefore the highest probability for tomorrow is a weakening smaller range day that attacks the old highs with a bullish bias. Any gap down is a buy. Intraday trading expect slightly choppier action than usual. If the old highs are reached you probably want to exit around that point – there will be breakout buyers, scared bulls waiting to “get out at break-even”, covering shorts, new shorts on a double top, and there is probably no way to work out what will happen.
With that in mind there are probably better intraday opportunities in the FX world. What I personally look for on a day like today is two bar reversal patterns, which are effectively a hammer on a 2-day timeframe. AUDUSD is particularly tasty, it looked bearish as hell yesterday, and now the complete opposite. Intraday traders should be able to profit from short squeezing here. Even better is EURAUD because the reversal is in line with the primary downtrend. You could take intraday trades here (I am on both of these) or simply trade the daily pattern with a larger stop.
Please do not underestimate how game changing today was.
Some of you guys have to start paying attention as the comment section is starting to resemble the Slope. Meanwhile I see very little activity on the trading front despite an avalanche of setups I selflessly scraped together despite an ongoing world cup game with Germany in the lead. So since nobody seems to be interested in trading let’s revisit some of yesterday’s victims to give you a rough idea of what you’ve been missing out on:
If against all odds you did pay attention – if just momentarily – then you remember that I predicted at least one attempt to scare the children – well, so far we got three. All of them have been contained in within the 25-hour BB and that is positive.
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