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Today is a illiquid and inactive day due to US federal holiday. NOt a lot opportunities. In fact I was not trade due to father duty.
The DAX has been pressed artificially lower by algo for majority part of the day to initiate their buy program at a discounted price in anticipation for a bullish continuation on Tuesday.
Secondly there was a stop run and then reverse pattern in Pound. Pound loves to run stops before a real move. Hence no entry should be considered before a major stop run appeared.
1. The bearish leader cac has developed a small M top which can be used as intraday trading reference.
The break of neckline after the bearish gap open has put the 100% and 200% extension targets on cards as intraday targets.
The 200% extension of that small M top is not likely to be the end of the swing as the scale of the pattern is too small comparing to that 2 week long consolidation range below. The 200% extension target at 4815 has coincided with the Friday break out level, Friday open and 618% retracement of the Friday rally. Hence it is worth to take a pause to monitor the order flow and price action at that level once the target being achieved.
2. DAX has developed two legged decline looking like a zigzag correction. A break of the down trend line could signal a bullish rotation and resumption of the trend.
1. ES is poised to have a bearish open below Friday's value, but above Friday's low and key level of 2650. Hence I would not be full on bullish on ES before it takes out and holds above 2665 level. If that level would be taken then it has a high odd to take out the Friday high.
I am not full on bullish means that I would be interested in buying the market after some counter auction (or simply put, run stops) of the overnight inventory which is near 100% short.
The key level of 2650 has been tested successfully during London session. I would not claim this to be a good support before the opening auction confirms it (to say didn't run over by the cash open).
Zones where buyers would react at the first test is 2645, the Friday Gap and 2635, the Thursday cash close print. 2623 to 2621 is the biggest 10 day volume node, which means below would open up long liquidation. To my view, it is the bull-bear line in the sand for this week.
2. THe big three indices have all entered the value area of the VP of Q4 2018. NQ has been the closest to the quarterly VPOC @6900, which is a very significantly order flow level. If NQ is able to stand firm above 6800, it is very likely to reach for 6900 and then roll over to the down side.
NQ has found support at the trend line, while ES is still way above trend line.
If trendline breaks, it would put pressure on the NQ. But ultimately, it is ES who is dominating the equity trend here.
I was hoping for a throw back in the 5 wave wedge structure. However, due to the holiday on Monday, the throw back didn't happen. Tuesday out of the gate, the market was tightly gripped by the bears, and the wedge structure was quickly broken. Now the path of least resistance for SPX is to the downside.
After yesterday's heavy sell-off during NY session, the bullish sentiment has impaired even though the up trend in European stocks are not yet broken technically.
DAX has bounced from the 61.8 fib of the last thrust up. It looks like the bulls still haven't given it up.
Notice that there is a inverse head and shoulder's pattern forming on the 15min chart with 11090 as the neckline. If that level were to be taken out to the upside, the bulls would have bought more time and we can hold our shorts until a higher price. If yesterday's low at 11000 were to be taken out, then it is a signal that the break out was a false break out and the bearish rotation would start from here.
The bulls are not done yet. The price action this morning has proved my point this morning that technically the bullish structure is not yet broken in European stocks.
Yesterday ES has also successfully defended the 2620 key support which was the 10 day high volume node.The possibility of retest the swing high at 2675 is live and well.
From my perspective, this is how I read the structure in the H4 time frame. It is likely that we are in the topping process for the latest up swing and we are going to start a correction to the down side. Two targets aiming at the initiation point of the wave 3, and 5 should be reasonable.
Like i said in yesterday's morning note, the bullish strength has not yet over in European stocks so long as the break out structure remains intact. Today the bulls have shown up again. Though I have to admit that the bullish strength is quite tamed and timid subjecting the whim from US equity.
On the other hand, after a major break out it is normal and necessary to consolidate the break out in order to build a solid base before the next round of assault.
If DAX is able to break out of the 11135 resistance convincingly, then a break out pullback is a good buy setup aiming at 11250 for a retest is a reasonable target.