Monday, September 19, 2011

Waltzing Bear-tilda - WMA 19 September 2011

Finally am done with an exam and so I can look at the charts proper... I had the previous two postings done with analysis from the charts off the iPad TOS app.

Now, I was going to spend some time to look at market angles based on the futures for /ES, /CL, /GC and /DX amongst others, together with the usual Napier leading indicators. However, by the time Asian markets were opened on Monday, the sell-off was well on its way.

So, for now, I am just looking at the /ES charts...

First up is the ES daily chart.
Last week had a bullish run based on some good news from world leaders on co-ordinated action, etc. This optimism held through a meeting in Poland, and awful economic data from US were brushed aside. However, looking closely, there are two ice hole failures (today inclusive) for failing to break above the 55EMA. Notice a bear flag pattern and watch 1150 for the breakdown of the bear flag for a test of the recent low at 1076, a likely bounce and perhaps more downside.

Last Saturday morning, I noticed a strange price action in the ES 30 min charts, looking like a rollover top. These are characterized by spikes, once said to be when the Greatest Fool had bought in, and a bearish divergence in the indicators. A test of a recent uptrenline was eagerly expected on Monday. When the markets opened today, there was an immediate gap down and runaway, validating all rules for the trendline break. Since the week open, an ice hole failure was observed and a bear hug was given at the US market open. However, a bullish divergence is showing and expect an intraday bounce to 1188-1190 before more downside to follow later in the afternoon. 1180 is an important intraday support.

The daily buy signals would be cancelled with a close at or lower than 1180. That usually means the bears have taken over and would rule once again.

So... looking much further from a global event perspective, I do not like the bad vibes I am getting about the imminent Greece default, the European indecision, the China banks, and just about everything else. There is an omnious feel about all this that is deja vu of the time just before Lehman Bros filed for Chapter 11. It feels like a perfect calm before a perfect storm, as I posted in my FB profile.

This week should find more volatility, after a rollover, with the Fed about to release their next weapon of mass  financial band aid.

From a technical point of view, here are two scenarios that are likely to happen in the weeks to follow that will confirm the downtrend.

First, the break of the bear flag.
A break of the bear flag at about 1150 would bring a visit to the recent low of 1076 on ES, and then continue to 910 after a technical bounce.

Second, the below scenario may just happen. This scenario was prompted by one of my trading mentor, Conrad Alvin Lim, in response to my comment about the perfect calm before the perfect storm. He asked me to look at the technical picture in comparison with the first quarter of 2008.
Below are the charts of Q1 2008 and the Q3 2011, placed side by side.

Uncanny, isn't it?
Nice one Conrad... this is awesome!
I purposedly aligned the chart nicely at today's price action and looking further after that last candle shown in 2008, the previous low was revisited... plus more.

Now, I took it another step further... just to demonstrate what could possibly happen. It is by no means a prediction, but an uncanny repeat of history (not to mention the way things are handled just now, it parallels the events of 2008, pre-Lehman Bros collapse with a rogue trader, policy indecision, and denial that certain events will be allowed to happen...).


Again, I aligned the charts as best I can...


Have a good one!

The MadScientist
19 Sep 2011

Note: Any material posted here is of my sole opinion, and my opinion may differ or change. This is NOT a solicitation nor advice proceed with anything else as a consequence of reading these materials. The materials presented here are intended for educational purposes only.

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