Premature Gyration

Well, the first session of the year appears to have turned into the trading equivalent of a raging teen hormone induced premature ejaculation. These days watching the FX side is indispensable to having a prayer at catching a decent move on the equities side. Case in point was the AUD/JPY last night and how it predicted the gap at the open:

It’s now scraping its daily NLBL and although there’s a chance we push to 80 a pull back to the diagonal support line is a possibility. There’s simply not much clarity in my charting universe right now and I talk a bit more about that below:

But let’s first continue with the FX theme as that is really where the action is right now. The NZD/USD just hit our T1 target and that means that the odds support a little pullback. I would take profits here and wait for instructions – a quick reversal play is also a possibility. However, the magic move so to say would be a push above that upper 25-day BB leading us into T2. Support is nicely established by a similar diagonal I painted on the AUD/JPY.

Not to be outdone the AUD/USD is in a similar configuration – can you see the theme here? I really like it when several FX pairs are painting similar patterns and are hitting inflection points at the very same time. That increases the odds of simply following whichever way the flag swings. Don’t think about right/wrong trades here – just go with the direction the wind blows.

Now on to the less clear side of things – as so often recently that’s equities:

Let’s start with the short term – which is actually the best news so far. We are building a bit of support near 1270 on the hourly panel – it’s good through the end of today’s session.

As you can see due to the trading holiday the daily spoos are hanging a bit in limbo right now – I recommend you instead follow the AUD/JPY chart. There is however support near 1232 – in case we wind up dropping hard tomorrow. One of my MMMRs is suggesting that we may be at a short term peak right now (usually good for a 2 or 3 day drop) but since it’s the first trading session of the year I’m not putting too much stock into my indicators right now – price is king and in particular today.

Now the weekly chart is clashing with the monthly outright as we are currently sitting right at a weekly Net-Lines Buy Level (NLBL). Overcoming it would confirm the monthly panel which is showing us a small breach of that diagonal resistance line that has kept the longs at bay for months now.

So now that you are aware of the overall situation on the price side let me finish this post by showing you the volume profile on the spoos. Remember that fair value is around -5.25 right now (i.e. deduct that from the SPX). There’s a big volume hole right at 1290, which would be roughly SPX 1295. That again minimizes our odds of pushing above those two upper BB lines on the daily spoos chart I posted above and which are entangling near 1290.

Bottom Line: It is very tempting to try to make bold predictions here but that’s exactly what usually leads to trading losses. Just because it’s a new year and everyone is jazzed (especially the beartards) does not mean you have to trade the equities side in a low odds configuration. I recommend you let this one play itself out – January is dicey enough to begin with and usually we see quite a few gyrations mid month. Given seasonality I would like to see a steep drop first before I would have any interest being long here – this move is looking like a red herring to me and based on conflicting evidence I suggest you proceed with caution or step back until we have more clarity.
[/amprotect] Cheers,