Sunday, October 16, 2011

Bull Dozer Rally – WMA 16 Oct 2011

Two weeks ago Thursday, in my previous blog post, I started with a short and sweet statement that we may be at the beginning of a sizable rally…and so it was, the bull came out and basked in the sun for the whole of last week!

As I was busy with an exam, I abstained from the markets and it is now time to look back at the week’s action to see what may be in store for the rest of the coming week…
ES (S&P500 futures)

Looking at the ES weekly chart (left), a major Gann swing point was recorded and a very bullish weekly candle closed after a bounce off the weekly 200MA. Together with a break into the bear flag, this rally appears to have technical legs, so to speak (see right panel, 30 mins chart).

The daily chart (middle) had a bullish divergence on the multiple MACD and had Buy signals early in the week, which was followed by a very strong rally that broke out of the FiboEMAs. The short term trend is up and steeply so, with a target about 1255 (on the ES futures), which coincides with a Fibonacci level as well as the neckline of the previous Head & Shoulders pattern. The daily 200MA should present a good resistance as well due to what is known as a confluence of resistance levels. This together with such a steep rally, is unlikely for the 1255-1260 level to be broken decisively and that is the next target point where a decision would be made whether to continue the trend, or reverse. Bear in mind (pun not intended) that bull rallies are not so steep and usually proceed in a more measured manner, whilst bear rallies are sharp and volatile. The current situation is reminiscent of the latter.

The first half of the coming week should be bullish as the trend should take another 2-3 days of rallies, and then later part of the week should stall or roll over to reverse. I would be watching closely about Wednesday.

DX (USD futures)
The real driver behind the seat can be thought to be the USD. The USD is affected by the Euro in forex, as well as money movements in and out of Treasury bonds and other “safe haven”reserve currency money market funds. Therefore, at a time of Euro crisis, I would track the Euro futures, in a recovery, I tend to fall back to the USD futures as it would reflect a clearer picture of the underlying money movements.

The weekly DX chart (left panel below) shows a failure at the weekly 200MA, and a major Gann swing point was placed after breaking two uptrendlines. Similarly, the daily chart (middle) is showing a steep decline (and hence a re-entry of risk on money into equities) heading into a resistance zone. Like the inverse of the ES charts, the 200MA is backed up with resistance zones. What is more interesting is that in the 30 mins chart, a clear bullish divergence is developing. This suggests that although more DX downside is expected, a reversal could be in force in the latter half of the coming week.

The MadScientist
16 October 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.

Charts by ThinkDesktop by TD Ameritrade IP Company Inc.

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