DAX is the main chart

In this market, where everything is so closely correlated, traders need to find what market leads, and just follow it.

Below is the chart of today's trading session. On it I display SPX and DAX futures side by side, starting from the time DAX cash market opened. You can clearly see how closely they trade.

Our stock market problems are mostly Europe related at this moment. ES wanted to rally and got ahead of DAX a few times during the session, but DAX was like the anchor, keeping ES in check. So until DAX bottoms and reverses, this US equities sell-off will not be completed.

ES vs DAX

 

New Section

Today I started a new section on my site - Charts. In it I will share some of my charts. I will try to put an explanation next to or on the charts I post.
Chart is the best depiction of collective action by market participants over a particular period of time. Very often a chart is all a trader needs to make an educated decision on a security he/she trades. If you are a starting trader - do yourself a great favor - do not place a single trade until you have perfected your charting skills.

Quick market thoughts

Futures and forex are 24 hr markets. But really, the main events will take place in Europe in the next 48-72 hrs. I expect some kind of movement during upcoming European session, judging by the way all charts are setting up. I will be taking cues from DAX. Quick observation across the asset classes shows one underlying theme - breakouts everywhere are about to occur:

1. US equity index futures are about to breakout higher. Buy stops need to be in place, these things just take out stops and go higher overnight with European markets. There is a 3rd test of overhead resistance setting up just 5 ES points higher from here.
2. EUR/USD is trying to break out of the falling wedge. A quick move above 20 dsma may be all this thing needs to take on a life of its own, and wipe out 700 pips of stops overhead. Buy stops have to be placed here as well. This is definitely not a sure trade, but could be a bear frying event that lasts weeks. One tricky part is ECB on Thu.
3. Treasuries are in a bear flag on short-term charts, and looking to break down, IF equities move higher, and most importantly, European resolution finalizes. What a huge move down this could be. Gauge this possible short by TNX break out of the wedge, and gap fills @ 22.50 and 24.
4. Gold is looking like it is trying to build on a daily hammer. I am a bit skeptical until break out of the symmetrical triangle. This said, I covered my short and will observe the action. Plenty of room to the upside if breakout occurs.
5. CAD is looking to break out of its triangle as well. This commodity currency has to get back into pretty close correlation with oil, which has been moving higher. BOC upgraded their view of Canadian economy today. This is going to help my view that CAD has to catch up with oil.

Good luck!

Update on Dec 7 @ 8:20 am
DAX did not break out. All risk assets will have to wait for that fact to take place. I will provide the chart with levels to watch shortly.

Update on Dec 7 @ 4:10 pm
Series of frantic news had failed to ignite sustained breakouts. Keep your powder dry until DAX tells us where to go (imho). Treasuries and VIX have spiked in a bid to provide some security for longs. This may mean that traders are still long but are buying protection.

DAX futures is a guide for b/o.

AMZN is in 5th wave down

Techs were weak all day today, not participating in rally. The most notable laggard has been AMZN. This is a very surprising development, because the holiday season is usually Amazon's strongest time of the year. I am not going to argue with the market though.
Ever since it hit 2011 high on Oct 17, AMZN has been in a downtrend. I believe that 5th wave down has started, and will possibly take the price down to fill 3 open gaps.

Following is the chart. You can see a broadening rising formation, which was a bearish signal. There are multiple trendlines which were broken, leaving the price vulnerable to drop down to supports  beneath. AMZN ran into 200 dsma (red) and gap fill, and has sold off hard. I highlighted possible targets below (in yellow). Price is traveling down in a falling wedge pattern, which I think will eventually become a bullish reversal signal, on the break of the downtrend. In order for this 5th wave to be negated, price has to get above 200 dsma.



AMZN 5-Wave Sell-off
(click on chart to enlarge)



Gauging SPY rally with IBM

In Saturday's post I said that I will buy the weakness in SPY (hopefully we are about to get that due to S&P EU credit downgrades worries this afternoon) to ride the rally into the year end. I also would like to gauge where this SPY rally may culminate. For this task I decided to use the bluest of the blue chips - IBM. This stock has correctly predicted all the bottoms and tops in SPY since November of 2008.

Below is the chart that shows the correlation between IBM and SPY. You can clearly see how IBM holds the ground on SPY sell-offs and leads SPY on the rallies. When IBM tops, SPY follows on the sell-off.
Also I show (on another chart) how IBM likes to extend its fib to 78.6% and sell off at that level.

This is what I am expecting to happen at this time as well. IBM is making new highs and is getting ready to take SPY along with it. After hitting a double top on Buffett's purchase announcement, the stock has been weak and filled open gap @ 177, predicting a severe weakness in SPY. Gap fill has served as a buy signal, and strong rally of last week took it to historic highs today. SPY is lagging a bit, but should break through the downtrend soon (just like previous times, shown on correlation chart).
IBM likes to rally into the earnings. So sometime in the middle of January IBM should hit $207, which is 78.6% fib ext. I intend to use that catalyst as a final target for SPY rally.

(click on charts to enlarge)


IBM vs SPY




IBM fib ext



CAD vs OIL - correlation broke down

There is almost 100% correlation between all risk assets in this market. But one of them has broken down. Canadian dollar and Oil have not been moving in lockstep, like they did since March of 2009. Near perfect correlation broke down at the end of October.

I am probably not smart enough to figure out exactly what is going on. But my main reason would be the fact that Canadian economy has been cooling a bit. Economic reports have been coming in weaker than expected. Carney, Flaherty, and even Harper have all been talking down CAD, by making remarks about how European debt crisis is weighing on Canadian economy.

It is not clear if this broken correlation continues much longer. Below are the charts which show in detail what is going on. Oil has broken above September highs and has taken out $100. CAD has been unable to trade above Sep highs and stays in the downtrend, with parity becoming a resistance. There is a symmetrical triangle on CAD which will break out soon (like in 2010). Keep your eyes on this development, as CAD has also been closely correlated with SPX.

(click on charts to enlarge)

CAD vs OIL



OIL





CAD

Update on Dec 7 @ 2:25 am

It is clear that CAD wants to catch up with oil.

BOC upgraded economic view on Tue.

Watch parity as the first target.

 



EUR/USD - Two Big Moves Coming?

I would like to bring your attention to a pattern, which I think may play out in EUR/USD in the coming days.

Following is the daily chart. The most important thing is to identify that price is in a severe downtrend. It is impossible to trade from the long side but for a very short period of time and with a reduced (if not minuscule) size. So until this pair makes it above 20 dma (dark blue) and stays there for two consecutive closes, it will probably continue downward to its 2011 lows, and perhaps slightly below.
You can identify the "twin" pattern on chart (highlighted by red dashed lines), and see how the current picture may unfold. This is obviously not a cast in stone, but a very similar price action up to this point.

Those of you who follow me know that I like falling wedge pattern to predict a sharp bullish reversal. It is clear from the previous twin pattern that once this possible (last) move down finalizes, we then may get a reversal and a sharp breakout to the upside. If that happens, massive short covering may take the price back to the upper trendlines.

One thing is certain, the price looks like it will not stay put at this level for too long. Use the double wedge trendlines and 20 dma to guide you in this trade. It is inconceivable that we are going to get such a huge whipsaw move at the end of the year, when FX desks wind down their activities. But perhaps it is the illiquid year-end market nature and uncertain European debt news-driven environment that will actually fuel such a move.

Let's see what happens...

EUR/USD
(click on chart to enlarge)

Generals Held Supports

In my Nov 17 post I showed how the "generals" of stock market were finally coming under pressure, foretelling a sell-off. I also pointed out that they would have to hold their supports for year-end rally to begin. That is exactly what happened. The confluence of open gaps and moving averages has served as a magnet, but also became a launch pad for bulls. Following are the updated charts of those pivotal market leaders. Nov 17 is highlighted in blue.

It is very important to identify that at this juncture these stocks are ready to breakout to higher levels. This said, I think that a minor pullback will occur in the first part of next week. I will use this opportunity to reestablish long positions in the market. My ultimate goal is to buy SPX @ 50 dsma. But market may not want to let many in, as underperforming fund managers will chase into the end of the year. So I will scale into my positions on weakness, using short-term charts' support levels.

(click on charts to enlarge)

IBM



GOOG




AAPL

 


 



 

Out, out, out...

We are up 100 SPX points since last Friday. I would like to use today's strong open to get out of all remaining equity positions. It has been a good and very satisfying rally.
Trading gods are to be thanked. A very humble trader says: "take what market gives you".
Looking to reload SPX at 50 dsma.

TNX is ready to break out

With tomorrow being NFP day, I decided to discuss a 10-yr T-Note short trade.
I have been literally stalking TNX to the apex of its wedge. I think it is getting ready to break out to the upside, just like in 2010. My targets are 22.50 and 24.00

TNX is ready to break out
(click on chart to enlarge)

Update on Dec 2 @ 4:20 pm

Definitely no breakout. Price got to the upper trendline and reversed hard. Equities sold off and contributed to treasuries' strength. We will have to see what happens next week. Price is now resting on 50 dsma. If no hold here, next support comes in @ 19.96, which is an open gap from Nov 29. Patience will be the virtue here, wait for it to break out.