Sunday, August 17, 2008

Weeky Outlook on ER2 18th to 22th Aug '08

Dominant TF: Daily, Weekly, with 60 mins lagging.
Swings: UP-UP-UP (from UP-UP-UP)
Market Direction(daily): long
Options (RUT): no change in outlook for August, i.e. condor outside the 625-750 range. Again most will have moved calls above 780 for safety. if 750 is penetrated, 760 should however be OK by expiration this week.

Last week we saw the trend weakening and even anticipated some retracement which occurred although moderately on Aug 13th to then march higher. We had that 750 MM resistance level combined with a Fib target a little higher hence some hesitation just above 750. Some more retracement is probably waiting to happen. The EURUSD is probably key to such event.

EURUSD: we are now exactly at the level expected a week ago (see EURUSD Aug 08 post on Aug 9th). Short sellers must have all had an excellent month so far, and should be looking at locking some profits soon as we are hitting a stronger support level now. Having said that, it's only a matter of catching waves as the descent is now well engaged and more profits going short are still in store.
For the time being, we'll have to gauge the strength of the coming retracement early/mid week, which we still anticipate to be mild to moderate (check 1.5345 Fib/MM levels).

60mins: upper bias quite resilient so far
While overbought, ER2 is holding well. MTFS only shows very moderate profit taking potential still hence further gains are possible (773?). We do however see some weakening in Entropy with a possible divergence. We'll therefore also remain cautious locking in profits.

Daily: good momentum should remain there
Could not have been more right last week. Now everything is still bullish so we'll check for 750 being penetrated if not even broken. We should of course see 750 tested for support as an indication then. We'll therefore look for a MM/Fib level for a target now. Our immediate target is the last high on June 6th, which turned into a sudden reversal, so here again, we'll tighten our stops not too far below 750.
Entropy and MTFS are really looking good so a reversal scenario is quite remote now.

Weekly: upper bias yet still same trading range
Almost the same as last week. We're now again testing range boundary to a possible yet difficult breakout to the 780s. Again, we've no or little support from Entropy or MTFS to suggest more than a summer recovery with no underlying strength to take prices higher for now. There's even some 'frustration' not to have seen a clear MTFS pattern completion, but the adaptive indicator may still evolve later on. We therefore have to wait a bit still for a clearer scenario for 4th quarter.