Sunday, August 31, 2008

Weeky Outlook on ES 1st to 5th Sep '08

Dominant TF: 60mins, weekly
Swings: DN-UP-DN (from UP-UP-DN)
Market Direction(daily): long, with tighter stops

Please also read ER2 post below for guidance.

Another roller-coaster week, down and then up again, with only some weakness ahead of the weekend. A good week to trade shorter time frames, or to wait quietly that uncertainty finally settles to open way to the anticipated yet difficult recovery. We'll see below that 1281 is key to the continuation of this ES recovery.
As usual, we'll follow the general macro-economic context.

60mins: looking for support
ES will be looking at testing the 1281 level for support. The [1250-1313] range is split into 4 equal segments, and prices may remain in current [1281-1297] segment or fall into the next one below. While it should hold, we'll have to wait a few bars for confirmation, and eventually update our game plan.

Daily: same weaker trend - 1281 level is crucial to this recovery
Despite 2 blue bars, ES is still relatively congested overall. A slow difficult rise is probably emerging, but we'll remain very cautious here. As for the 60mins chart, we have to wait for prices to move to an upper segment, and breaking the 1281 level would definitely indicate continuation of this congestion period... to a possible new test of the 1250 level!

Weekly: Again, worst is over but...
Virtually no change from last week.
Now that we've seen support holding, we have been looking for a recovery potential, but it appears it will start on a slow note.
Compared to last week, only the MTFS crossover looks a bit more positive. This does not change our outlook in the least as such crossovers generally provide little recovery potential. A congestion or limited upper bias remains our favourite scenario for the time being even if Entropy is weakening too fast for our liking.

Weeky Outlook on ER2 1st to 5th Sep '08

Dominant TF: Daily, with 60mins and Weekly close behind
Swings: DN-UP-DN (from UP-DN-DN) Weekly direction is hesitant still
Market Direction(daily): long
Options (RUT): September/October call options are placed above 875 for 100% safety otherwise 810 is very safe. I personally think 790 is more than safe enough (strong res at 782) for Sep expiry (3weeks). No change on puts: placing them below 625 is also very very safe.

Last week post clearly indicated the retracement to 720s levels would open the way to a test of recent highs again. ER2 didn't quite reach the MM level at 750 but passed 746 (61.8% Fib retracement level), this is not an exact science, but we weren't too far off, were we?

EURUSD: no retracement last week, but we go with the flow and were not expecting it anymore anyway. Now the main support level is tested again in line with our previous post. The outlook remains the same with some unlikely bounce on the 1.46484 support level and probably some congestion and further tests until it breaks out. Our 1st target then will be 1.435. We'll obviously check Fib/MM level carefully when such acceleration occurs.

60mins: some weakening
Profit taking near the strong resistance level is nothing surprising. Indicators now show some weakening so we are likely to remain in the same price area. No significant retracement in sight (Check Fib levels). We do notice swings are clear, and bar colours fairly "solid" (blue, sometimes yellow on a UP swing, red and yellow on a DN swing).
As a reminder, going short on a red bar with a Swing remaining UP is a contrarian trade often requiring assistance from a shorter time frame and with target and stop closely monitored. Most in-trend traders will be long or will re-enter on a forthcoming blue bar.
Obviously, we'll also have to keep EURUSD in check (see above)

Daily: pause on major resistance level is no surprise.
No real change from last week actually...
Indicators have shown some anticipated weakness near the major resistance level, and ER2 is now ready to test it again as announced last week. I therefore repeat the same possible caveat: "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."
Most would still be long from an earlier entry picked up on the 60mins chart. Others may want to play behaviour near test level.

Weekly: upper bias yet still same trading range
No change (simple copy&paste) from 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.
Note: we do have a MTFS crossover to monitor, even if not in ideal situation.