Play for Tuesday, July 14th

Let's keep it simple.

We are heading towards the upper trendline of the current downward channel and are within a 50%-61.8% retrace from the 4330s high reached on July 1st to yesterday's lows.

For a short look for weakness up to the 4250s, with a stop above 4290.

Otherwise, shall one wish to marry the long side, look for strength in the 4150s-4160s. The 7-day average however is in the 4180s and might provide support as well.

Daily momentum is positive, weekly momentum is negative. Happy Bastille Day!

Play for Thursday, July 9th

As predicted, yesterday we broke below the 4170s and found resistance again in the 4130s (or slightly below).

We are currently quoted in the 4150s on the bid: a potential area to look for weakness is the 4150s to 4170s.

Alternatively, if we do rally for a larger retrace up, the final area of resistance would be the 4230s to 4250s, with the 4200 line before this.

I am still short and might adjust my stop either up or down.

Chart update

As promised, this is the only channel I see at the moment, coupled with major resistance/support levels.

Play for Thursday, July 2nd

Yesterday's rally was again quite abrupt and with no retrace down. However, daily momentum indicators are currently looking back north.

We could sell on weakness in the 4330s to ride a retrace down, or else look for strength between the 4280s and 4300s. Do look for a clear buy signal around these levels, as we have drawn a small parallel channel that could take us slightly lower as well, see below, and intraday momentum is mixed at the moment.

Play for Wednesday, July 1st

Yesterday was quite a choppy, ranging day, especially in the morning. I got out of my long, flipped to a short and then got stopped out of it. The market then dropped to the 4230s.

We are drawing both a slightly ascending parallel channel and a wedge, as the FTSE's range is clearly tightening. We have broken out of the cup and handle on Monday, and daily momentum, on some indicators, is beginning to turn back pointing north: this is not confirmed though.

I am probably going to stay on the sidelines for today as I'll be running herrands and be at the desk sporadically. In any case, we are quoted in the 4250s: weakness could come here at open, and other areas to look for weakness are the 4270-4280s or else 4300 remains the area of resistance for now. Otherwise, look for strength in the 4240s. At this point, it would be advisable to be humble in profit taking, until a clear breakout occurs.

Play for Tuesday, June 30th

I am going to keep it brief. We had a potential cup and handle in the works and we broke above the handle (the descending channel) yesterday.

However, we have also failed just above the 4300 line, as we did on Friday as well. Given the support that the 4310s to 4330s represented, we could now be seeing strong resistance at those same levels.

Intraday momentum is looking north at the moment and given the rangebound market we are experiencing I'll be looking to play both sides. So, two possible plays at the moment: sell the 4310s to 4330s resistance on weakness with a rather tight stop or else look for strength on a dip to 4250s.

Play for Monday, June 29th

We slightly broke above the descending channel on Friday, but quickly drove back inside. There is still a potential cup and handle formation to consider if we don't break towards the bottom of this channel and touch the 4200 line again soon.

I'll be looking for weakness below the 4270s to add. Intraday as well as daily momentum are looking south. However, I'll be watching the ES closely as well as there is an area where we could find strength nearby and take the European indices up as well.

Play for Friday, June 26th

Notice how we have a potential cup and handle formation in the works, and in conjunction daily momentum is beginning to settle and perhaps point back north again.



However, we are right outside the boundary for the downward channel: one idea is to look for weakness at the open and then look for strength anywhere between the 4250s and 4270s. I am taking on a small short now at 4283, 10% fill, stop at 4310.


We need a strong move above the 4300-4330s to confirm the cup and handle and thus a continuation of the bullish trend.

Play for Wednesday, June 24th

Intraday momentum is beginning to look north, and yesterday we found strength in the 4220s.

My plan is still to look for weakness anywhere between the 4270s and 4290s, while we could touch the 4300 resistance as well. The 4230s could be the area off which we bounce.

However, the current quote of 4240s is a the 50% to 61.8% retrace from yesterday's highs to the lows as well: be on the lookout for weakness at this area as well.

Play for Tuesday, June 23rd

Yesterday we broke out of the 4300-4500 area completely, and after-hours we reached as low as the 4190s.

I suggest looking only for short entries on rallies: a full retrace from yesterday could take us up to the 4290s. However, I would expect the FTSE to go down further before making a strong retrace up: eventually we could see it test the 4300 area as a resistance, but this seems very unlikely for today. The first area of significant support should be met between the 4150s and the 4180s.

In any case, I would look to add on weakness below the 4300 line. I am still short as per the details on the left.

Play for Monday, June 22nd

Another quick and easy post.

On Friday we failed at the 50% to 61.8% retrace from Monday's highs and determined a descending trendline: so watch out for it.

However, also be on the look out between the 4280s-4290s for strength to the upside, and that a full retrace from last week's highs could take us as high as 4400.

Please also note that intraday momentum is mixed, and while daily momentum is still looking south, more and more indices are displaying a cross between the 50MA and 200MA.

I am still short at 4356, but have now moved my stop to 4370.

Play for Thursday, June 18th

I am still to find an opportunity to short this market. The downside momentum has been quite powerful since Monday and we have only had minimal retraces. The trendline we have formed this week is extremely steep, see charts below.

Intraday momentum has somewhat turned around: so we might get a chance for a short entry. Watch out for these levels where to find weakness:

• 4290s to 4300s: retrace from yesterday's highs.
• 4310s to 4320s: retrace from Tuesday's highs. The 4320s had also acted as support on Tuesday.
  
• 4350s to 4380s: retrace from Friday.
• 4370s to 4400s: retrace from last week's highs.

I doubt we'll have a full retrace from last week or Friday's highs though, but Monday's move left a lot of traders flat.

I am going to be out again for the most part, both today and tomorrow, so I don't know how much trading I'll be able to do.

Weekend wrap up, June 14th

This is going to be a quick wrap up. As we all know, we have gripped on tightly to the 4300-4500 range: actually, the range has gotten even narrower, as the lowest point I have for the week on a 24 hour basis is 4366.


We now have a couple of ascending trendlines too look at (in brown and pinkish purple), both of which could be part of a larger wedge (in pinkish purple, I favoured the major ascending trendline).


As we keep on ranging, the daily RSI is stalling, and while the indicator is moving lower, we can't call it divergence as we have not recorded a new high in prices. Momentum on the daily is now looking to the upside: but just like last week, a 1% move up or down can currently change this.


Looking at the Accumulation Swing Index, as we did last week, please notice how we broke above previous highs for the year and how we have kept on climbing.


My bias is to look for longs, until the picture changes. Next week is option expiry too, so let's keep an open mind. However, as we continue ranging the feeling I have is that, while we will most certainly get a pullback, the lows touched in March will not be broken unless unforeseen events materialize. Please note how the Alligator's mouth is shut tight (below), and has been so for a prolonged period: the next major move, up or down, will likely be quite powerful and fast.

Play for Friday, June 12th

I am going to keep this quick as I will be off the desk most of the day.

We broke out of the wedge that I had signalled this past weekend, but have still respected the lower trendline of that wedge even after breakout, as you can see in the chart below.


At US close last night we struck an long ambush area in the 4440s, from which we bounced off slightly as we reached as high as 4469 on the bid since then. Look out for pronounced weakness below the 4470s or else a buy signal again in the 4430s and the 4440s.


As mentioned, I'll be off the desk most of the day, I'll keep my small long for now and either let it ride if we move higher or get stopped out at a small profit. Regardless, I would still advise to be cautious on trade size, stop loss distance and profit objectives. Daily momentum is now positive, but intraday momentum is mixed.

Weekend wrap up, June 7th

Last week we finally broke out of the ascending channel we had been in since March. We are still holding the 4300 to 4500 range and have actually detailed a wedge formation over the past two trading days.


Although we have reached as high as the 4490s on Friday after non-farm payrolls, as we immediately shifted down we can safely say that the triple top play that was noted last week could still be in play. In fact, the bulk of the action occured below the 61.8% retrace from the 4510s top. Also, note below how the previous ascending trendline as now acted as resistance. It remains to be seen how we will play out of this wedge: still 4300 and 4500 are the key levels.



Intraday momentum, as of US close on Friday, is mixed but pointing down: however, as it has occured over the past 4 weeks this can change easily over the course of a few hours. I'll be watching the wedge above tonight as the markets light up and tomorrow morning.

Watching some longer term charts my current bias is to say that we could have some further upside. This in spite of the fact that the FTSE has been severely lagging all other indices, US, Asian and European, over the past week: the FTSE is the only index that has not made new highs. In any case, I would warn to continue to be cautious until we break out of the current 4300-4500 trading range and define a new trend.

Looking at the daily charts, please note how, in the first chart below:

• Momentum is pointing south, but at the moment it is extremely sensitive given the tight trading range: so even a 1% move to the upside would turn it back pointing up. I would disregard this indicator at the moment, unless we break below 4300 and have a confirmation from the triple top formation as well.
  
• The RSI has been heading down while the market has flatlined: this could be interpreted as divergence but also as the indicator "recharging" before a push higher. Divergence is more secure if a higher high (or a lower low) in price does not determine a similar higher high (or lower low) in the RSI value.
• The Bollinger bands are tightening and replicating the well known trading range: we have a upper value on the daily of 4500 and a lower value of 4297 (surprise surprise).
• Very importantly, the 60 day weighted moving average and the 200 day weighted moving average have crossed: this is something to watch carefully and to be interpreted as a bullish signal, especially if momentum doesn't fail significantly causing the 60 day weighted MA to bend and go south again.
  

Below is another view of the daily chart which is coupled with the Accumulation Swing Index, which often gives good indications for confirming or disconfirming trendlines and breakouts. As you can see below, while the price range has remained the same, the Accumulation Swing Index has broken above previous resistance, which is a bullish sign. However, while we have reached for the resistance made during January's high, we need to break above it to have a clear bullish confirmation.


Now, looking at the weekly chart below three points of note:

• Momentum is still looking north.
• No divergence on RSI (this is a weekly chart too, so it takes a long time to develop).
• Upper Bollinger band is still untouched by this rally.
  

More importantly, let's look at some long term trendlines on the weekly chart below. I am not a fan of using technical analysis over long time spans: the behavioural rules behind trendlines and support/resistance can break down over long time frames, and the composition of an index is also to be considered. I would not go further than 5 to 7 years, with 7 somewhat pushing it, but that's my opinion and I know many traders might differ.

On the weekly chart below, the important things to note are:

• That the current 4300 to 4500 trading range was also found between 2003 and 2004 and lasted almost a year.
  
• That we could be detailing two distinct, but parallel, downward channels. Channel 1, which we broke below in September/October of last year, and Channel 2, where we have been in since then.
  
• Major resistance/support lines (such as 4550 and 5100) cross both these channels. If the triple top we have detailed is confirmed and we head down we would remain within Channel 2. If we break above 4500 and then 4550s area we could well be heading back into Channel 1.
  

That said, let's put thing into perspective. At the March lows, most markets had lost 50% or more of their value from the 2007 highs. As an approximation, from a valuation perspective that would equate to the underlying companies experiencing cash flow growth of around negative 5% to infinity. Now, how credible is/was that? Also, we rallied off from the 2003 lows: while it's true that things are gloomy, it is also true that the world keeps on spinning: families book holidays, friends go out to dinner, and so on. Maybe less than before, but regardless of that life goes on. The system is cleansing itself as bankruptcies and restructurings take place too. I would not be surprised if the March lows were the bottom of this bear market, and we are in for less volatility and a ranging market before the next bull begins.

Play for Wednesday, May 3rd

Since Friday many indices have broken above the highs they had previously reached in this rally. The FTSE however has lagged behind, finding resistance yet again in the 4510s: this despite the fact that the index is strongly tied to the performance of energy and mining company and underlying commodity prices. The FTSE is usually a leading indicator to broader market indices such as the S&P.

As you can see from the charts below, the ascending channel is still intact, and we have a potential triple top to look at. Triple top formations usually form over a period of many months not just one: but we are in still in a quite unusual market.


Intraday momentum is mixed, momentum on daily and weekly charts is still positive. We would break below the ascending channel with a move towards 4400 and the neckline of the triple top is at 4300. A strong move above 4500 would disconfirm the triple top formation.

I am keeping this small long on for now.

Weekend wrap up, May 31st

On Friday, as we approached US close, the FTSE gained over 50 points as the US markets rallied to finish the week and the month of May on a upbeat.

We had reached as low as 4400 on the bid before that happened, which also coincided with the lower boundary of the ascending channel that we have been respecting since March. We also broke above the triangle formation that was in the works, in a fashion similar to the break above the 4100 line in mid-April. Now, we have to see how the FTSE reacts during market hours on Monday, but momentum on intraday charts is strongly positive as of Friday's last numbers.


Looking at the daily chart, note that:

• After almost 20 days pointing south, momentum seems on track to go back to positive: this depends on the next few days obviously. Momentum on other indices, like the NASDAQ, the Euro Stoxx 50, the Hang Seng and, less evidently, the S&P 500, DJIA and DAX, is already looking north.
• Last week, the 30 day weighted moving average (in purple) acted as support.
• The 4670s acted as resistance back in November of last year (there is a typo in the chart mentioning October), and in January.
• Please also note that we closed 2008 just above the 4400 line (4405), so we are currently positive YTD.

When compared to the past 9 months, volatility over the past 20 days has been subdued as we have ranged in a 200 point zone between 4300 and 4500. Look at the Alligator indicator on a daily chart: it's closed shut, signaling that the next move (up or down) is going to be quite powerful.


Lastly, look at the action on the weekly charts and notice how the candles react when close to the Bollinger bands:

• Bollinger bands often act as resistance or support.
• See how in trending markets, regardless of direction, the weekly action often stays close to the upper (in an uptrend) or lower (in a downtrend) Bollinger band.
• Also compare the current width of the band to the past.
  

I'll be watching momentum closely these coming days: if we turn back to positive we might have a considerable northbound move coming. That said, let's not get ahead of ourselves because we rallied for 45 minutes into the US close on Friday.

Play for Friday, May 29th

We had a hectic afternoon yesterday, very choppy and volatile at the same time.

At pre-open, we are quoted in the 4420s to 4430s on the bid, and we are standing on the borderline with the descending triangle mentioned yesterday. However, momentum is still positive on intraday charts. Please see below the updated charts.

I will not be looking for a short entry and try to guess a top on this move unless momentum switches. Most likely, I'll either stay flat or look for a long entry or a scalp.

Triangle watch

Please see this updated trendline chart. Check how in early April we defined a downward sloping triangle we then broke above of: that break coincided with daily momentum turning positive again.

Compare that action to what we are seeing now and look out for any significant switch of momentum to the upside as already noted.

Play for Friday, May 22nd

Yesterday afterhours the FTSE reached as low as the 4310s, and it's now quoted in the 4340s.

Today, and also once we open again on Tuesday, I'll be looking to add to short positions if long term momentum is maintained.

I updated the trendline chart just below, and as you can see we have respected the neckline of the double top and we are still within the ascending channel.


We could find some strength at the levels we are at, and possibly retest the middle of the double top between today and when we come back on Tuesday. Ideally, I'd be looking to add below or at the 4440s: another touch of the 4500 level would be quite bullish.


We have the following bearish arguments on the table:

• Double top formation which requires a confirmation.
• Negative momentum on all long term time frames, intraday and daily.
• Daily and weekly RSI had both reached overbought conditions.
• Negative divergence on both daily and many longer term intraday time frames: see the 8 hour chart below.

Still, we need to penetrate the neckline of this double to complete the bearish picture.