Mid Day Market Update
Submitted by Nic Lenoir of ICAP
Let's get a bit technical here, because it is required. As stated yesterday my concern was that the drop into the close last night would not lead to enough follow through in the morning and we would chop around the tops some more. Unfortunately I do think that this is what we are dealing with here.
Looking at the Dax first. There is a HUGE resemblance, even in the details of substructure, between the open triangle we are currently forming, and that we formed the last two weeks of September. That indicates our next move is up and that on should get long this morning around 5,700/5,730 to play 5,890. This is where the difference will be made between September and now. At 5,900 we should drop again around 5,650, probably to test the gap or the support line of the channel, and either break through, or like at the end of September waste our downward momentum on the support before forming a new bullish impulse. Honestly formations could not be much clearer than here, so we will rely on that as our game plan.
Translating this into S&P futures term, it seems the 1,070/1,075 support zone is holding for now, and we are at risk to go test 1,100. I highlighted on the 180 minute chart the same type of open triangle consolidations we have observed for the Dax. We can see the redundancy quite clearly. If we do test 1,100/1,120 I think it will be a great opportunity to get short for at least a 4% or 5% move.
Looking at FX markets we can see clearly how AUDUSD which is trading in perfect harmony with equity markets has been testing and holding support around 0.9190 and would most likely retest 0.93 before it has a chance for a bigger retracement.
The charts might seem overloaded a little bit with annotations but I feel very strongly about the market structures observed and their similarities. We keep seeing these open ended triangle where RSI indicators on time-frames shorter than 3 hours retrace trading sideways to 40 until the next impulse up. When we revisit the highs, the next leg down will be quite indicative of whether the retracement has potential for more depth or not. We need to have areas where momentum grinds back upwards with little advance rather the other way around.
Good luck trading,