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Yesterday a double bottom price magnet has drawn the price below to run stop loss of bulls and then draws the shorts in.
It is really the “dollar candy land" setup for the market maker.
Remember this formation and learn it in your heart. This is how market maker plays the game.
Can you help answer these questions from other members on NexusFi?
This is how I see the developments in Cac. A successful test of the 61.8 fib of the break out leg, the next logical step is attempting to break out aiming at the 4950 mark.
European stocks are breaking out of their 5 day balance with a bullish gap up on the back of some strong Asian price action.
People might ask bullish gap lead by Asian is weak which is highly likely to be retraced. It might be true a long while ago, but now it is different. WHy?
Because the US funds and money manager has seized bigger and bigger portion of the market, the Asian stocks are actually the leading indicator -- Before the market maker pulls the US equities, they would go entering positions in Asian market to make some riskfree profit.
Another sign that the breakout was in the making even before the Asian open is that the Dutch index has been making a triangle formation with higher and higher lows three days in a row. It is a sign that the break out is imminent. The Dutch index has low volume and liquidity, hence the algos are not interested (while the DAX is such an algo driven market), but its market is still tightly linked to the rest of the world, hence it is actually a great leading indicator that I am using.
For the majors like the DAX and Cac, we are going to draw out of trading plan for the day on how to trade a breakout market.
For Cac the prior resistance was clearly set at 4880 level, hence we would long from the retest of the break out level.
The pre-market low sets at 4885. Any test below that level is a buy.
For DAX, the break out line has been retested, hence a retest of the pre-market low is a great long entry.
Thank you very much once again for your very interesting analysis. It is just as pleasant to follow them every time and try to learn something about market trends.
Thanks for commenting.
In fact, I didn't do the statistical analysis. The conclusion I draw is merely anecdotal coming out my experience.
But the link between the Dutch index to DAx and Cac are well established due to the exposure from the liquidly traded instrument, EuStoxx50 index. Netherlands has 5 stocks in the basket of EuStoxx50. While the AEX index includes only 25 stocks, therefore it is heavily influenced by the flows in the EuStoxx50.
This is the chart from the week before leading to the 18th Jan break out. Just look how clean the formation is where you can see clearly the resistance line and trend line support. While in DAX, the chart is pretty much a mess due to all those stop run price actions created by the algos. The Cac is somewhere better. The most good looking chart award goes to the Dutch index without any doubt.
Yesterday an inside day and it is also the third day in the three day balance area. Given the current state of trading, ES is going to have a bullish gap open above yesterday's value area. Hence the 2645 mark served as resistance yesterday is going to act as support. We are going to buy in the case of a retest of that level.
If price breaks and holds below 2635 then a break out has failed and we are going to switch to shorts. Before that my focus would be the hypo 1 described above.
NQ has tested weekly S1 for support on Wednesday, hence was slightly stronger yesterday where it has traded above Wednesday's value.
FOr NQ 6675 is the line in sand that I would be bullish so long as the NQ is holding above that level.
1. DAX has back tested the broken 11000 major resistance zone to confirm the bullish continuation. Hence my short term bias has been kept to the bull side. Last Friday DAX has tested the 11320 mark which is the 78.6 fib and prior internal support level. After one month of bullish advances, there is a sign that the price is getting exhausted the last break out has extended only a bit over the prior high making it the primal suspect of a false break out.
The plan for the next week, is to buy pullbacks. The buyers are likely to be active on the first test of the prior resistance zone at 11140. In the bullish case, the buyer could show up at the major fib retracement levels of the Friday break out leg.
