Thursday, August 18, 2011

Rollover Mr Market - Pre-Market Technical Analysis 18 Aug 2011

Earlier this week, in a SMS to a friend, I mentioned that I am waiting for the market rally to rollover, for the last buyer to buy in, and then look to short the market later this week or early next week.

That time is possibly here.

Below is the ES 30min chart with my harmonic EMAs (blue and red lines) and the 200MA(magenta line). You can see that price has a way of communicating with these moving averages. A breakthrough is followed by a test and the outcome of the test tells you what is coming. The chart starts late last week after a test of the 200MA and price passed... So a rally followed. I mentioned previously that this rally was weak compared to previous bounces, analogous to a dead fat cat bounce. The bullish signals were followed by MACD crossovers as well as the (E)MAs pointing upwards as indicated by the thick green arrows.

So what happened yesterday was pretty interesting... Early at market open, the ES rallied hard... Harder than usual. However, the indicators looked suspicious... And by noon, it was clear that this breakout was a false breakout. The ES then broke down and tested, only to fail both the EMAs and the 200MA. There was a test of the 200MA and that failed too. Dave Elliot of, who was one of my market teachers, calls this "an ice hole failure".

This means that we can expect today to be a down day for the ES.
The latest down activity stemmed from Europe (again, of late) where at some point the CAC and DAX were down more than -3%!

As I write this now from my iPad, the US Initial Unemployment claims is slightly worse than expected... Giving way to a gap down open.

Good luck to those who didn't get out over the past few days... Time to bleed again...

The MadScientist - 18 August 2011

Note: Any material posted here is of my sole opinion, and my opinion may differ from others. It is definitely NOT a solicitation to do anything else as a consequence of reading this material. The material presented here is intended for educational purposes only.

1300hrs ET
The European markets closed down >4%, and the ES is now down 3.8%.
There should be a sell off later in the afternoon for the ES to clsoe >4% down... and Asia will wake up to a bloodbath.
A slew of very bad economic data was released today with Philly Fed lowest in 10 years, amongst others.

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