Monday, June 04, 2012

Technical Picture - Correction Approaching 50% Retracement of Oct. 2011 Lows

The SPX weekly chart above shows that we usually get ample warning of significant market turns through the RSI divergence.  The exceptions were the flash crash of 2010 and the current market drubbing.

Also, of note is that the 2012 high lines up perfectly with the Fibonacci ambush short (green) that preceded the 2008 market crash. I'm not going to read too much into this last phenomenon beyond price has a memory.

In my last post, we were in Fib. extension longs and were expecting a short-term pullback into the ambush zone. Unfortunately, the ambush long failed and price fell precipitously.  The weekly RSI failed to provide a warning so we had to scramble to get on the right side of the new bear trend.

From the ES E-mini futures chart above, we can see clearly that extension shorts are in play.  The anchor is 1384.  Last week we traded half way back (HWB) short and reached the 23.6% FE overnight. The target lines up fairly closely with the lower ambush long support (anchor Thanksgiving lows).  It's important to note that the 50% ambush long did get participation on its first test.  If the bulls can defend this 61.8% support level, we might be able to break the bearish trend. If not we look for the 50% Fib retracement of the Oct 2011 lows to 2012 highs to hold as support. That level lines up fairly closely with the 61.2% of the Thanksgiving low.  Either way, we expect a bounce very shortly. Futures rollover is Thursday and we don't expect most bears will re-initiate their shorts into the Sept. contracts after such a big move.

For now, we use the 15 minute timeframe to guide our trades.  As depicted below, the shorts are holding the HWB level as resistance.  Next target is 1254.


trader said...

Thanks for your analysis.

TJ said...

Welcome trader