Gathering strength... or is it just a retreat...?

Yesterday, i anticipated there wouldn't be much room upward and that the market had to pull back a little to "prepare for battle" particularly 1000 on ES. The retracement occurred stronger than i anticipated, but can we really be surprised still in this high volatility environment.

At least the retracement is now engaged and we just have to gauge where support will be found.

EURUSD: I had that Fib/MM target, but admittedly did not dare publishing it. It is a Fib target on the Daily chart (1.272), it is a MM level (1.281) on many time frames, but here again, volatility really took us all by surprise. At this point though, stops must be tightened. No reversal at this early stage, but the drop can be stopped near this low level.

ER: drifting should continue, but this is only congestion at a higher level even if one can see wild swings in an intraday basis. ER could retrace to below 520 (511?) but this is not a return to bear mode yet. We're only gathering strength for now... Will that be enough? We'll know soon enough.

ES: same situation... Yesterday i anticipated a return to ~968 levels, but it was traversed and even tested for resistance later in the day, so selling should normally continue. Having said that, again this is only a 'drifting congestion' here too, so while we may reach a target support in the low 940s, there is still no indication of a return to bear mode. At the same time, 1000 looks now a notch stronger so that's a real battle we may have up there later on...

(snapshots available on request)

Preparing for battle...

A good day yesterday with more investors jumping in in shorter time frames to make sure they don't miss the train. Long time frames still show uncertainty and fear and it is true that we're not out of the woods yet. Volatility can still make us sweat a little going forward...

EURUSD: as said before, we've left the [1.354 -1.3672] range to settle lower and [1.33-1.3328] is where it could happen. No recovery potential here for the time being though. We have to wait for the current drifting down to stop first.

ER: Could reach 560, but indicators are not very convincing. We don't see any reason to rush into the market using long term scenarios. It is probably easier to swing trade using shorter intraday time frames, or wait a little using daily/weekly charts.

ES: We can see a bit of angst ahead of the 1000 key level, but current resistance level inches away from the much anticipated 1000 is also a strong technical level on short tick/volume charts, where action actually is. For now bounce level can be 984, or 8 or 16 points lower. 969 is now a very strong support level and it is clear ES needs a stronger base to prepare for the "final batte" ... :) It is only when 1000 is attacked that we will see more energy being released in the market.
A caveat though: volatility is still very strong so one may just as well hit 1000 first on a positive news then retrace, bounce etc

Watching short time frames is again most recommended.

Weeky Outlook on ES for Oct 20th to 24th '08

Last week's comment that we would see congestion (yet with high vol) until we pass 1000 again was valid and still is. Like with ER, we certainly have an upper bias now which we must observe with a lot of caution.

ES 60mins: 1000 is now in sight
ES has difficulties reaching overbought levels but should try and creep to 1000 indeed. Volatility is still high so i venture seeing the target onthe 60mins chart, but it could a little longer of course. If such attempt fails, we will look at 925 holding for a another round of buying then.

Daily: Same as ER
Yes, the situation is SO similar that i could almost repeat the same analysis. It is difficult to gauge how long the hangover period will last now, but 1000 is undoubtedly THE test level going forward, and at the same time, we'll watch carefully a possible support level (925) if the recovery fails (likely scenario) and if ES is then range bound for a while.

Weekly: quite dangerous still
We still have a pretty bleak picture here and Fib/MM targets do not look too good. Obviously extreme volatility often causes levels to be stretched without breaking making scanerios difficult to separate. Again, we'll see whether 1000 is tested and passed soon, taking into consideration that bears could try and take the market somewhat lower...

ON ACCOUNT OF THIS EXCEPTIONAL MARKET SITUATION, SNAPSHOT UPDATES WILL BE POSTED ON THIS PUBLIC BLOG THIS WEEK AGAIN

Weeky Outlook on ER for Oct 20th to 24th '08

Dominant TF: Daily, 60mins with the weekly chart obviously a little lost in this environment.
Swings: DN-DN-DN from UP-DN-DN
Market Direction(daily): recovery is now in sight, yet caution is still essential
Options (RUT): Low-prob condor is possible

Last week's report (monday pre-market) indicated we should not give up too quickly as the 500 level was bending but still holding in the storm. The next comment about a "hangover" period is still valid this week even if we are slightly more positive this week. Does that mean volatility will come down now ? maybe, maybe not... Going long on short times frames is possible, but conservative investors/traders may want to wait a little.

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

EURUSD: we may have found a bottom, we have no clear indication of a strong recovery just yet so a congestion (with a lower bias) is likely for now until we get a strong signal. We'll therefore watch Fib levels on the 60mins chart, but on the daily chart, the test level remains 1.3672 which could be the signal we are waiting for.

ER 60mins: the worst is over, so what...
The crisis may be over, futures positions have been squared off on friday, Q3 corporate earnings haven't been too bad, so we're now ready to look a long entry point. However, we are still in a "hangover" period and volatility will stay strong for a while. 60mins may be a little too slow to take advantage of intraday play. We'll try and use this time frame to determine a entry point. We can try and find a better price, we can set our stops below 500, so now it's up to everyone to decide when to jump in.
NB: it is not an invitation to go long at all costs! We can still have bad news coming, so it may still be too early (and for most it definitely is!)

ER Daily: no big expectations
I here more or less repeat the above. We have some uncertainty showing in our indicators, with our MTFS rather typical of a failed recovery and Entropy showing a bottom but no strength yet. The 500 level could well be tested again even if we are now more positive.
Prices are so low that one can always enter small on a shorter time frame and accumulate later on when confirmation comes at this time frame.
A CAUTIOUS APPROACH IS STILL VERY MUCH REQUIRED.

ER Weekly: again this has been a market crash, and this time frame is obviously completely out of synch.
Reading a weekly chart at this point is useless. All we can say is that support levels are still valid with a clear drop in one week from 625 to 500, and this high frequency or spike will have tremors visible on shorter time frames for at least a couple of months. These last low levels should hold, yet we keep in mind there is still more downward potential (~440)

ON ACCOUNT OF THIS EXCEPTIONAL MARKET SITUATION, SNAPSHOT UPDATES WILL BE POSTED ON THIS PUBLIC BLOG THIS WEEK AGAIN

Volatile in a way, but also looking slightly better now

With derivatives expiring today, lots of positions are being squared, cutting losses, rolling over contracts etc... this is routine circuitry in the markets, almost independent of on-going dynamics.

We however have some new information coming from lower time frames even if the longer term outlook is about the same. I remind readers that this public blog is reserved to mid to long term scenarios (i.e. few days to few weeks). I do also provide "trader's notes" several times a day to a selected few intraday traders.

Yesterday, the message was, based on Wed's closing prices, that the fall could halt on current levels, or last Friday's lows or ... about 20% lower. Some are confused by such comment, but a support level remains a support level until broken! Short time frames gave a bounce potential on stall level indicating a short term reversal was possible. This however does not mean the overall trend has changed.
I'll therefore stick to a mid to long outlook commentary with some short term info to adjust your current positions.

EURUSD: Some congestion with a confirmation that the 1.343 level should hold now, so a slight upward bias is there. This is still not the 'spark' we are still waiting for. In fact EURUSD must crawl back to 1.364 before we see significant energy coming back.

ER: Taking above comments in consideration, it seems 500 was indeed the key level for now. ER is now looking slightly better, but should stay volatile at least until middle of next week. For now, still no Long signal on the daily chart.

ES: Same story here, except that the 60 mins chart is particularly easy to follow hence one may be even more tempted to trade short time frames. On a longer term outlook, we see 875 holding the way as the 500 level for ER, so despite no strong recovery potential just yet we may see a continuation of the hangover period for a while.

The important levels will be 1000 for ES, and 625 for ER, not only passed but also tested for support. I wouldn't venture telling when this could happen... it can take 2 days to 2 weeks! Mid next week...?

Mayday Mayday ...

Oops... What did i say yesterday about adrenaline levels... Yes i warned of some drifting down back to 900 for ES and 500 for ER and yes... i admit i again did not anticipate this would happen in a single day.
Volatility is out of this world (check VIX) and while we can still model directions and levels, we have a lot of trouble gauging market acceleration correctly.
Anyway, you probably went short yesterday and enjoyed the ride...

Now what's in store for today?

About EURUSD, the US$ is incredibly resilient at these levels and could start strong again today. That spark is not coming so we'll stay oversold to maybe around 1.327. Going short is now however limited to short time frames.

ER: Oh well, we're back to 500, and we could test lows again. We're obviously not too positive so caution is essential here. Another free fall remains possible with a target as low as 370 if the market doesn't calm down soon.

ES: Same story, we have a support level at current levels, then around last week's lows, then.... another 20% lower. Aaargh...

Let's not panic just now. This is witching day and the market can still bounce today after all (short tick charts give us a stall level). All we know is that there is NO significant mid-term recovery potential right now, and stopping the bloodshed would be good enough until the whole world takes its Prozac and starts smiling again...

Adrenaline levels at last back to normal...

At last, markets are calming down and behaving as anticipated. We've seen ES looking for support on 1000 and ER retracing also to Fib level 1 around high 540s. On EURUSD, we have a key 1.3672 level which proves difficult to pass so we may see more uncertainty around current levels (i.e. hovering between Fib 1.358 and MM 1.3672 levels). As said before, EURUSD needs a "trigger" to bounce off these lows, so may test the higher range boundary until it breaks out. Check lower time frames for a better picture (we use a 233T, 610T, 1597T set of charts).

ER: can go either way today, but drifting a little lower is likely. On the daily chart, it is obvious that we need to test a stronger level to go higher. We'll watch Fib/MM as in the last resort, ER could need to test as low as 500 to gather more energy.

ES: same story here, ES will probably not hold 1000 and look for a stronger support level while staying above 900.

So, no rejoicing just yet, the worst may be over, but buyers must remain quite selective and look for a better entry point, not so much for the long term, but after losing so much market cap since Aug, one may want to look for bargains a few % lower than current prices.

(snapshots available on request)

A HISTORICAL DAY WITHOUT A DOUBT

Yes, what a mad day again ! Amazing relentless buying spree yesterday... don't tell me now that cash is hard to borrow when one can still shop away with leverage levels which are still quite high. I was told that banks and financial institutions have accumulated a LOT of cash ready to pour back in the markets... Shall we say in a few days and weeks that this storm only occurred to shake the system to eliminate the weak. Now and then the market takes traders and investors to the cleaners, wiping out part of the community. Is this also a Law of Nature? I'll let "market philosophers" ponder on this...

Anyway, the charts for today indicate:

EURUSD: so far easy to follow up, €/$ is testing the 1.3672 level again and could pass it very shortly. However, no chance to see a rally on the daily chart as there is still quite a lot of down pressure. €/$ could hover around current levels, then test the level for support and then only shoot up.
For now, we'll watch the resistance level on shorter time frames as we may have some retracements first, even if the breakout is quite likely. Such breakout would bring short term energy, but no pounding on the $ just yet.

ER: Should i dare give a target for the day... These markets are so crazy. ER will hit Fib level (and minor MM level) very shortly, and could stall there. It could also reach the next one in the 610s. A pause is necessary so we'll take profits soon as a sizeable retracement (cup&handle) is likely some time this week.

ES: Same story. No way we could anticipate yesterday that our 1000 target for the week would be hit in the 1st day... ES is more overbought than ER so retracement may start here, if only to test 1000 for support now. For the time being,the bias is still up so we may just as well exhaust buyers first to the next Fib level. On the longer term, same pattern to expect so a pullback is more than necessary to wipe sellers out of the market.

(snapshots available on request)

Weekly Report for ES - Oct 13th to 17th '08

OK, last week was a terrible bloodshed we followed day by day, and we now wonder after Friday's bounce if there could be more...
We'll give a chance while staying very cautious. More than ever before, short time frames are recommended as they do respond better to shocks, spikes, or high frequency dynamics in general.

ES 60mins: again it is a still a little to slow and at this time frame, while there is a recovery in progress, indicators have not responded fully, and we need to pass the 24% and test the 38% Fib retracement level first. A long way to go...
In the meantime, we may see the "hangover" mode for a while until confidence returns to the markets. Staying above 875, and then 925 would be good enough for now before attacking 1000 (Fib level).

Daily: No rejoicing yet
While we are seeing an interesting bounce, here again, we have to wait for Entropy to bottom up and for MTFS to crssover nicely. Until then, we may see some congestion below 1000, which will be THE test level going forward. If volatility stays this high, we may see 1000 being tested within a couple of days. I would give it a week...

Weekly: dangerous still
We still have a pretty bleak picture here and Fib/MM targets do not look too good. Obviously extreme volatility often causes levels to be stretched without breaking making scanerios difficult to separate. Again, we'll see whether 1000 is tested and passed soon, taking into consideration that bears could try and take the market somewhat lower...

ON ACCOUNT OF THIS EXCEPTIONAL MARKET SITUATION, SNAPSHOT UPDATES WILL BE POSTED ON THIS PUBLIC BLOG THIS WEEK AGAIN

Weekly report for ER - Oct 13th - Oct 17th '08

Dominant TF: Daily (we notice a drop in significance level on the 60mins chart)
Swings: UP-DN-DN from DN-DN-DN
Market Direction(daily): Short with tighter stops now. Nothing wrong with staying cautiously away until the end of the storm though.
Options (RUT): better wait for the end of the storm here too. Good premiums for November positions though

Last week's report (monday pre-market) wasn't far off the mark and while we were hoping for a bottom, we knew the hemmorhage was still there and we saw more more blood gushing out in an almost panic situation. The concerns are valid, but markets are clearly overreacting now. We do need time to evaluate damages to the real economy while investors come back to their senses. The spreading outside America has been blown out of proportions and we will realise shortly that the crisis can be contained to an extent, particularly if consumer demand in emerging markets picks up (excess) consumption given up by cash-stricken Americans. Overall the economic situation may be not as bad as it looks now, even if the political cost for America and the western world in general will be ENORMOUS. Don't read me wrong: this is still by far the worst crisis since 1929 ! There will be a before and an after October 2008 in history books !!!

Anyway, let's get back to the charts:

EURUSD: I obviously underestimated volatility and my target was way too shy. EURUSD is absolutely ready for a radical bounce and yet we don't see clearly which level would be strong enough to it. Do we have to lose more ground? That does seem quite logical indeed so lows could be tested again. Short sellers must just be careful of the coming reversal and should therefore follow shorter time frames.

ER 60mins: not out of the woods just yet
OK, we've had a reassuring end of week bounce, but can we start buying? On short time frames, we're long already with due consideration it is still a contrarian trade. 500 should be tested for support to go higher, so one should not expect volatility to come down too quickly. We'll watch the first Fib level and a possible channel break to reinforce a long position.

ER Daily: still down, but congestion is likely now.
Those who followed my advice to go short last week were right. The support levels broke one after the other, yet is it different now? 500 hasn't been broken technically even if stretched to the limit by current volatility levels. We are however no way near a recovery situation, but in "hangover" mode at best. Any bout of selling can still send ER much lower. Having said that a few days with ER hovering around 500 would be good enough to signal a trough on Entropy and may calm down our MTFS green line. As always, we'll keep an eye at the shape of our MTFS crossover to validate a turning point.
Again current volatility acts as a time compression factor so can make this scenario happen any time from the 1st hour of trading on monday to maybe wednesday or thursday.

ER Weekly: this is a market crash, and this time frame is obviously completely out of synch.
Reading a weekly chart at this point is useless. All we can say is that support levels are still valid with a clear drop in one week from 625 to 500, and this high frequency or spike will have tremors visible on shorter time frames for at least a couple of months. This low levels should hold, yet we keep in mind there is more downward potential (~440)

ON ACCOUNT OF THIS EXCEPTIONAL MARKET SITUATION, SNAPSHOT UPDATES WILL BE POSTED ON THIS PUBLIC BLOG THIS WEEK AGAIN

Check oil level... engine is overheating...

Yesterday, my targets were too 'shy' in this mad market and now, I'd hate to play "Cassandra" but the whole system is on the brink of collapsing completely. If ES breaks this lows around 875, we can lose up to another 20%... and eventually hit 720...


EURUSD: US$ may strengthen a little more, but a congestion is more likely in the short term. Technically EURUSD is ready to shoot up but again, the spark is not there yet.

ES: Regardless trading opportunities, we're really in deep s**t now if the market doesn't hold these lows. We'll check volumes as a bounce would make sense even if only temporary...

ER: Same trouble... I would hate to believe we're aiming at 438. Let's give a bounce at current lows a chance.

We must be very careful that in times of EXTREME volatility, support levels can be penetrated deep without breaking. A bounce would validate the supposedly strong levels given yesterday.

(screenshots available on request)

Oh well, just another few hundred billion dollars of market cap evaporated yesterday...

At least the business of printing money is booming... Anyway, no sarcasm and let's just focus on our charts with a caveat first: A support level is a support level, or until it's broken, it's not broken... May sound silly, but many traders read too much in charts, and tend to project their fears on the market. Let's just try and be rational. Again, we'll leave the more fundamental analysis for later.

EURUSD: Yesterday's range was valid, and while we have an upper bias in the short term, we need to confirm 1.3672 as a new support to go higher. It's really ready for it... just waiting for the spark...

ER: The 531 level given 2 days ago is more than valid still even if one should not overlook the enormous downward pressure that is still present in the background. While we can a lot of fun in short time frames, short sellers could maybe tighten their stops a bit. No rush to go long on hourly charts and above.

ES: The equivalent level on ES was just below 970 (see previous posts) and is also holding for now. However, only a clear passing of 1000, then firmly tested for support could announce the end of trouble, and that's certainly not visible yet. The dynamics are otherwise very very similar to ER's.

Should sellers wish to give a last bout before the weekend, we'll look for a bottom in the 500s for ER and 930s for ES. We'll also check for volume to make sure this bear trend is fully exhausted.

(screenshots available on request)