Market Update

Good Evening All

In Tuesdays post, I called for a tradeable low and looking to buy retests of 1300/1290: http://marketletters.blogspot.com.au/2012/05/oversold-bounce-time.html. This played out to a small degree yesterday. We now wait to see if the market can take out some minor overhead resistance levels and pick up some steam. In short:

• The S&P500 tested and HELD the key trendline and 1290/1300 support zone. A bullish hammer was left on the Daily chart and higher lows on the smaller timeframes. I believe this is part of a bigger bounce sequence that could lead to a retest of 1330/1350 in time.
• Note that type of swings usually begin with simple short covering after the market fails to make a new low. This then triggers more buying as we tick higher and higher. 
• Key risk for bounce scenario is a break of 1290 and this would be the trigger to re-initiate shorts once more across risk assets. I would actually be very concerned if this level dropped.
• Central to my oversold bounce call is the USD. Both AUD and EUR remain at key buy zones/short cover zones. However, for now we are just not seeing decent bullish confirmation. If we are to rally, these pairs must move higher and NOW. I show a potential short term breakout pattern in AUD below.
• Asia continues to be a laggard as anticipated. Today, XJO tested Fridays low as did the Hang Seng. Both made higher lows. These could be short term double bottom patterns but obviously we will need a strong offshore lead for these to play out (joys of this timezone).
• Any decent bounce in the upcoming fortnight in S&P500/DAX/EUR should be used to re-iniate big picture shorts in Asia. It is tough to try and pin point a level for now but simply we will need both price and time before initiating shorts. 

S&P500 Daily:
Retest of key trendline that holds. Bullish Daily reversal candle. Need to see breaks of 1325 to open up a bigger bounce. 

Tactical View: Looking for continued bounce up to 1340/1350.

S&P500 Daily ii:
Note I do not use Bollinger Bands in my own trading. My point here is that a buy signal has been triggered now that price has closed back into the bands after a climatic overthrow. I have noted a few examples on this chart in the past year or so. Obviously this could be an "outlier" event but the essential point is that we hit a price extreme, and buyers are now stepping in.

AUD June 15mins:
This is the key short term setup I am watching tonight. If risk is going to catch a bid, AUD needs to break out of this basing pattern. Last nights low once again tagged the lower end of the trendchannel line. We now need to see price recapture and hold 9770/9780 futures.

ASIA

XJO Daily:
Certainly not enough evidence to call a low yet. The trend is down. Price has tagged the first major target zone but the first rally attempt was slapped down yesterday with more bearish follow through today. I don't have a trade here other than to look for good bounces to re-initiate shorts.

Hang Seng 60mins:
Like Australia, little confirmation of a low or turn yet. This trend down has been very powerful and there is no need to fight this. Note we have hit an interesting relationship between the initial waves down. Need to see bullish follow through to confirm.

A Shares 60mins:
In no-mans land for now

Thanks
Austin

Oversold Bounce Time

Evening All

The S&P500 finally bounced yesterday right off the key trendline I have been monitoring (see yesterdays post: http://marketletters.blogspot.com.au/2012/05/market-observations.html). I actually think this opens up a decent bounce into month end for risk assets that will throw some off guard. Any retest of 1300/1290 tonight should provide a great low risk buying opportunity. This is actually my preferred scenario as markets very rarely put in a V shape type low and the trend is still down thus most traders will sell into this on first attempt.

• S&P500 put in a bullish Daily reversal candle right out of key trendline. 1290/1300 thus should now be solid support for a short term bounce. Potential targets are 1330/1350 then we re-assess.  Look to buy pullbacks tonight/Wednesday. If this bounce follows the May 2011 parallel, this rally could be higher and longer than most would deem imaginable.
• Key to an equity bounce is the USD. DXY looks to have put in a potential short term double top. This couples with the key 1.26/1.27 bounce zone in EUR mentioned yesterday and the 98c support zone for AUD
• The DAX also continues to give me encouragement. It is a battler. Despite closing below my key 6400 level, this market is just not impulsing lower.  There is actually a very possible ending diagonal pattern at 6200. A close above 6400 is now needed for bulls to re-initiate longs/a potential bear trap. 
• ASIA showed some positive follow through today. There are stacks of resistance levels higher up. I think the best play is to be out of shorts and looking to re-iniate in price and time. Not enough evidence to me to confirm a meaningful bottom. The bigger picture is bearish so focusing on the short side is the key theme in Asia.  

S&P500 Daily i
Tactical View: We have confirmation of a potential swing low out of support. Looking to buy 1300 with targets up to 1330/1350. This is for short term traders only.

Bullish Daily reversal candle out of a key trendline. Also note the potential trend channel support.

S&P500 Daily ii:
I have zoomed in to give more detail to this confluence of support. Should be formidable on the first test with the 38.2 Fib retrace, the 200 day exponential, the previous November 2011 highs, and a interesting trend channel. Potential bear squeeze here.

S&P500 60mins:
Trend is till down and no obvious base pattern for now. Sell the first rally into 1320/1325 for intraday traders. I am looking for a retest of the low which holds to get long for a bigger swing. 

DXY Daily:
Double top pattern and potential A=C rally off the low. A USD sell off has bullish implications for Equities in the short term.

AUD Daily:
My key chart for the bull scenario. Potential overthrow of the downward channel that was recaptured which implies a climatic low. Note AUD turned right on the A=C level.

DAX Daily:
6400 is now key overhead resistance. A strong close above this would be a potential bear trap. 

DAX 60mins:
An interesting short term low has formed on an A=C projection My point is not that his is a corrective off the high and thus  new highs coming. I am merely stating that this is a key turn area given the symmetry and projection.

This is a classic bullish ending diagonal pattern. Note the wave count with price just coiling up for a breakout. 

Thanks
Austin