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Equity Technical Update

Submitted by Tyler Durden on 03/03/2010 17:23 -0400

Nic Lenoir

Submitted by Nic Lenoir of ICAP

We bypassed on a close yesterday 5,740 for the Dax which was the upside confirmation level. We would now recommend to wait a pull back to 5,740/5,700 to buy in order to play 5,890/5,900. A look at the weekly chart for the Dax shows that so far we still have a possible topping formation, and 5,890 would correspond to the second shoulder of a H&S on January's highs. In the meantime, as long as we don't close below 5,700 on a day the way is up. Since we have the 61.8% retracement of the sell-off since the tops right here at 5,827 it is likely we will retest 5,700/5,740 before going to 5,890/5,900 wich will give hobby bulls a chance to enter this move with a very reasonable risk reward. We note on the 180-minute chart that we have an inverted H&S with the neckline at 5,740, so a retest is all the more likely.

Ever since the S&P crossed back above 1,095 we had recommended closing the shorts initiated at 1,100/1,107. not much juice there but better safe than sorry. A break aboce 1,112 confirmed the upside to 1,122 which we reached in a hurry. The 1,122/1,129 range should hold us here. Interestingly we have a different count in Elliott for the Dax and the S&P. The S&P looks a lot more like an impulse since the lows, whereas the Dax seems like it is forming a zigzag towards 5,900 where a next bearish leg will kick in. The way to reconcile this would be for the S&P to grind to new highs while bouncing between 1,115 and 1,130 or slightly above while the Dax proceeds to pull-back and reach the upside target. As a general rule, the Dax has been a much clearer indicator of trends than the S&P has been we will encourage following the game plan laid out by the Dax and rethink the whole game plan if/when we get to 5,890/5,900.

EURUSD is breaking out after we highlighted several time the strong divergence in momentum indicators. We see 1.4008 as the first big target (50dma), with intermediary resistance at 1.38/1.3820. The trend is bearish for the medium term, and we will monitor good re-entry levels for tactical shorts as the market progresses on the way way up. If anything though this move confirms our outlook on the Dax.

In equities our risk if we are wrong is to be in a 3rd wave up so playing the upside on apull-back with a tight stop on daily close below 5,700 is the prudent play, especially for those with core EURUSD shorts.

Good luck trading,

Nic

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Wed, 03/03/2010 - 19:18 | 252991 deadhead

The S&P looks a lot more like an impulse since the lows

gee, the first week from about the 8th through the 16 was clearly cluttering....then a 3 and a 5 wave in a C and it was certainly on low, low volume. sure looks like a zigzag to me. oh well, we will know soon enough.

Thu, 03/04/2010 - 00:39 | 253304 vaibhav

Nic...u were short on Gold right? adding to your shorts??

Thu, 03/04/2010 - 13:56 | 253753 Anonymous

EurUSD lows of 2008 will be broken, by the time we step into Q32010. The gap down on 24th Dec 2009 is Santa taking away the gifts he gave in the Christmas of 2008. Move down since then is only rebounding now, to cover ground up from oversold area in the short term, gaining space and catching up on time to go and smash under 1.2.

Correlations are an interesting tool, but just one of the interesting tools, changing all the time in a world where change is the only constant. Typically, equities and EurUSD even though moving more or less together, have seen EurUSD leading in time.

The highs of SP1 seen already in the year are a tombstone past which holding any hopes is seeking a passport to dive headlong into the abyss. SP1 will hit new lows, lower than seen in 2008 within a month of EurUSD breaking under 1.2.

Once that is achieved, when hell will be sold for a song in 3Q2010, the ground for a new bull market will be laid.

In the biggest of calamities, the biggest of opportunities have taken birth. Mankind has triumphed with the optimists, always. This crisis of credit too would produce its share of books for the libraries frequented by kids of this generation. But while, the material for those books is being played out, the opportunity of a lifetime is coming.

The highs of SP1 mark the completion of an abc-X-abc structure from the lows of Jan 2009.

DXY Index, over the next week or two, once it completes a further sequence of 5 more daily closes greater than closes of 2 sessions ago each would make a temporary top. If by then 1077 is not broken under on the SP1 it will make one last effort to test the highs of 2010 seen so far or even breach it by a percent or two. Then the dive headlong into the abyss will come. Have your canes polished and keep producing some good cash off your holdings in the meantime. There will be a good time to hobble down to Wall Street and make the biggest purchase of a lifetime, before Winter comes again this year.

Fri, 04/16/2010 - 09:13 | 303733 mark456

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Equity Technical Update

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