Monday, July 28, 2008

Weeky Outlook on ER2 28th July to 1st Aug '08

Dominant TF: Daily, Weekly, with 60 mins falling
Swings: DN-UP-DN (from DN-UP-DN)
Market Direction(daily): flat or short
Options (RUT): no change in outlook for August, i.e. condor outside the 625-750 range.

On ER2, last weekly post mentioned tightening stops on the long which incidently reached target at 725 (Fib, just above SR).
Most would have tried a short which may take a little longer to materialise. We do notice that the 60mins is no longer a significant time frame, so we'll switch to a lower time frame to follow our trade while keeping in mind the daily and weekly contradictory charts.

EURUSD: No major change: there will only be a chance of significant recovery if the US$ passes 1.5625. Prices have been contained in a trading range.

60mins: congestion with lower bias
Prices left SR to reach 700 so to our surprise a little higher than Fib PR1. We have kept an eye on EURUSD which almost hit the target 1.5625 level (mentioned several times on previous posts), but we do notice correlation is not as clear as it used to be.
MTFS lines seem to ge their own way indicating possible congestion and Entropy is not helping either. We will therefore limit our analysis to pure price patterns and follow a likely Fib pattern to 700 and lower. No significant drop to expect, unless volatility increases on account of lower volumes.

Daily: peaking...
ER2 reached clear Fib targets (719 for the retracement, 725 for the previous Fib expansion), and looking now at taking a breather. The early MTFS crossover (ECO) and peaking Entropy should normally allow ER2 to retrace to the 790s. No indication at this stage that ER2 will retrace lower yet 688 is also a possible target.

Weekly: congestion to a little bearish
For the 2rd time now, MM stall level seems to have broken the fall, and one might think that a reversal is in the cards. Yet, MTFS and Entropy look if not bearish at least congestive so one should certainly not expect a strong rebound before the negative pressure is dissipated. Further to what was said last week, the last bounce looks like it was short-lived and last lows (stall level) or the Fib target around 625 can still be hit within a few weeks and without any significant exogenous shock to the market. One shall therefore remain fairly cautious as one should always be when Swings are in a DN-UP-DN configuration.