Saturday, August 23, 2008

Weeky Outlook on ER2 25th to 29th Aug '08

Dominant TF: 60mins, Daily, with Weekly lagging a bit.
Swings: UP-DN-DN (from UP-UP-UP) Weekly direction is hesitant still
Market Direction(daily): long
Options (RUT): August options expired gracefully below 750. Outlook for september is about the same range, with calls maybe above 780 for safety (absolute safety is above 875). Puts are unchanged although one can also spice the position up around 660.

Last week i warned about locking in profits with tighter stops as entropy was weakening fast. To be honest we could not anticipate the extent of the retracement nor can we be nonetheless surprised of volatility near expiration day. The situation is however not 100% clear looking ahead into the next few days, but this should have no consequence on our overall outlook.

EURUSD: the US$ has been more resilient than anticipated withbars staying solid red until pivot level at 1.4648 to then modestly retrace to 1.49. It would however make sense to see a retracement to nearly 1.52, but this is not visible in the charts yet, and may actually never happen... A period of quite mild retracement and congestion is possible later on. All we know is that the dominant trend has definitely changed overall and that further gains are likely by the end of this year. A likely 1st target is 1.435, then 1.383. I suggested taking profits to possible re-enter short later on, or tighten stops and hang on a little.

60mins: correlation to the EURUSD
1.49 proved to be a strong resistance on EURUSD while 760 acted the same on ER2. Retracement to the 720s is over and MTFS is fairly bullish even if Entropy isn't too strong. We'll check for Fib levels for resistance. At this point in time, ER2 may crawl back to recent highs, but this looks a little unconvincing still.
No reason not to be long, but one should remain cautious at this time frame.

Daily: pause on major resistance level is no surprise.
MTFS is weakening inches away from overbought level, so is Entropy, yet it is likely that ER2 will have another go at the resistance level. Obviously this can turn into a Head&Shoulder or a more positive and decisive breakout. Impossible to say right now and other time frames do not help either, hence hesitation near resistance level remains a very possible scenario for the next few days.

Weekly: upper bias yet still same trading range
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.