Monday, November 03, 2008

Weekly Report on ES - Nov 3rd to 7th '08

Markets are again largely correlated so we again always recommended reading this report in conjunction with our latest ER report below. Dynamics are indeed similar except that we may be tempted to look at shorter time frames such as 30mins. In terms of levels, we do notice a bottom last week on MM stall level (60mins) where it was even clearer on ER, but the picture is clearer overall, and we now have to gauge whether the market is now ready for the "1000" battle...

ES 60mins: on stall level
ES is slowing down on stall level (~968) as we could expect it. We may lack sufficient energy to reach 1000 this monday but this will happen sooner or later anyway. We'll check Fib/MM levels both from this stall level as well as from 1000, and our MTFS/Entropy shall tell us which we to navigate. A lower time frame will also be helpful here.

Daily: Preparing for battle
1000 is now around the corner. However, at this point in time, we don't see ES sailing through that important level and some retracement on 1000-1010 seems inevitable. Such retracement could send prices back to current levels, so we may have high volatility, wild swings... to maybe end the week almost unchanged. We'll follow the possible scenario day after day anyway.

Weekly: no rejoicing just yet!
We still have no evidence whatsoever of a forthcoming recovery and current volatility may cause amazing whipsaw movements. We have to remain very cautious if we want to invest long term. This is a time for intraday traders...

NB: Like for ER, daily updates will be posted on this blog this week again.

Weekly Report on ER - Nov 3rd to 7th '08

Dominant TF: Daily, 60mins with the weekly chart obviously a little lost in this environment.
Swings: UP-UP-DN from DN-DN-DN (have we bottomed ??)
Market Direction(daily): cautious retracement trade, i.e. a backlash is still possible
Options (RUT): good time to sell a put spread, but staying on the sideline a little longer is also fine

Last week monday, we had that moment of hesitation between a 500 level that wasn't technically broken, stretched to the limit because of the extreme volatility we've been going through... and a continued down pressure that anticipated a much lower target. We therefore recommended to stick to the 60mins chart and possibly even lower. The 60mins chart indeed confirmed a strong support level around 440, which triggered some substantial short term buying.

We still have some uncertainty regarding the effect of deleveraging on the markets now, so it remains difficult to anticipate a strong recovery. We shall therefore remain cautious this week again.

Now, let's have a look at our charts:

EURUSD: €/$ came very close to MM stall level, bounced, and now found support on 1.27. We now have a first target on 1.29, and while we still have an upper bias, €/$ may hover around low levels for a while. Again, deleveraging and banks recalling US$ loans massively can cause the US$ to strengthen further. We all know the amount of US debt could and even should send the US$ to recent lows so... again caution must be exercised on our usual time frames. We will stick to the 60mins (and lower) charts this week again.

ER 60mins: stall level in sight.
We've seen a good recovery and a target is now close. ER should hit the MM stall level just belo 550, or even MM resistance later on (~562)
Again volatility keeps on playing tricks on us, so the normal subsequent retracement could happen this monday, or by mid week. 500 would be a good support to take prices higher.

ER Daily: are lows behind us ?
We now have substantial evidence to believe so and we have a target price (563) which is exactly on the 60mins resistance level. On the medium term though, we need more energy which could be found on a 500 support level again. We have the US elections tomorrow, so market dynamics may obviously be somewhat affected. We will be cautiously optimistic and look for buying points this week. We can always set stops below 500 in case a forthcoming recovery fails this time again.

ER Weekly: ?
Significance level is lower so we will not pay too much attention to MTFS and Entropy. However a straightforward recovery (blue bar) is very very unlikely. We have to admit this crisis has surprised us already but there is nevertheless still a LOT of downward pressure to dissipate, so it is way too early to rejoice and buy frantically into this market. Again, we'll have to keep this time frame as background info only and follow the 60mins charts rather.