After two and a half days of narrow ranged trading that followed a sharp optimistic rally, the true colours of sentiment was shown yesterday once Ben Benenke announced Operation Twist at 1415hrs ET.
Looking at the ES futures, in the 30min chart (right panel), a bearish crossover was showing just in the morning session. It wasn't as obvious and the corresponding daily chart at that time looked like 3 dojis in a row after what seemed like a failure of resistance. By the end of the trading session, whatever gains from the past 5 sessions were wiped out and it ended at the channel support/bear flag support. In the Asian trading hours, this bear flag was broken and still remains so at time of writing.
The picture now becomes a lot clearer since the uncertainty of the silver bullet is no longer an anticipation. Clearly the response is one of disappointment and all optimism in the last week went out the window immmediately. The chart has a MACD that appears to be crossing over as the bear flag breaksdown, and the "ice-hole failure" (a term coined by Dave Elliot of WallStreetTeachers.com, one of my trading teachers) is obvious. My Buy signal from last week's action is cancelled and it appears that a Sell signal may be in effect today, if the ES ends where it is just now.
The 30min 200MA is pointing down and this can be taken as a bearish indication, with a rollover price action of a double-top from the last 5 trading sessions. The current breakdown of the bear flag is not strong, as indicated by the MACD, and can be expected to retest the support-turned-resistance line. It is likely to break back into the flag/channel and then break down again later today.
Recall the earlier post (Waltzing-bear-tilda) about the bear flag and its breakdown? The next downside target would be to meet the August low, and then the downside target of 910. A new setup on the weekly charts are beginning if the ES closes at the current level or lower. This would incline my analysis to be much more bearish till the end of 2011 as it represents a new leg of downtrending. Given that really not a lot looks great right now, including technicals, and Fed "disappointing" silver bullet, Europe, etc. The recession is already here and will be haunting the markets now.
Let's see how that happens in the weeks to come...
Going over to a recent leading indicator that was identified, the Euro... since the world focus is currently on the European crisis(-to-be), the Euro is being affected and the EUR/USD ensures that the USD is rallying as the equity markets tank. Looking at the /6E Euro futures, sustained selling pressure is observed in the daily chart, although already heavily sold, it seems that there is more to go.
CRUDE... that's another interesting one... recently on CNBC, some analyst talked about crude being bullish for the rest of this year. I doubt so.... very much so.
Singaporeseeds and myself were watching a trendline break about to happen, and at a point, we really did wonder if it going to reverse! On Wed, it was reported that there were less supply, or rather more drawing of crude stocks in US. This fueled the rally to test the broken uptrendline (of a wedge) the third time. Within hours, the true colours of the trend appeared and crude is looking really bearish right now on the 30min and daily charts. Combined this with the recessionary expectations (China has got into the act of bad data too, particularly today), the probability is higher for crude to sink.
About the only thing I am uncomfortable is Gold... looking at the gold futures, there is a serious downside and likely a strong upside later. Its decline right now on the back of a strong USD is muted and draggy... so the correction from a parabolic run may not be a full correction. It still looks like there are more downsides to Gold before it rallies. Watch support levels closely as a bounce will be quick and swift as previously. The 30mins chart look bearish for now but I wouldn't hold my breath for it.
At this point, the HK Hang Seng closed -4.8%, and Europe is -3.5%... all reeling from the Fed smack (however weak it was to stimulate the economy).
22 Sep 2011
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