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After breaking down from the M top, DAX has also achieved its down side target at 11320 to the tick.
DUring lunch time, it has made a false break down and it is very likely to develop into a spring.
Can you help answer these questions from other members on NexusFi?
DXY is losing 96.40 support, therefore it was in a slow motion crash. With a volatility at such a low level, it is not worth to trade euro today. Pound and crude have been offering better setups.
A counter trend trade would require the confluence of multiple conditions to warrant a trade. Here are the elements:
1. TICK divergence
2. Downside target being achieved by a distribution at the top
3. spring setup confirmed.
The market is firmly in the bear's hands and I don't see any evidence suggests it is changing to any extend.
Hence the most important principle to bear in mind is to never never ever to pick the bottom thinking that you are smarter than anyone else in the market.
It is OK to take counter trend trades, but only take it with a proper formation on your back where an invalidation point can clearly be defined in this setup.
The best setup i have found is to trade a break of an ABC corrective pattern in the direction of the trend, like this one in DAX. I didn't take it because I was away in lunch. But technically it is a perfect continuation trade formation.
1. Yesterday was a bearish exhaustion day in US equity as the second down leg has failed to make a new low suggesting lack of follow through and strong support from the institutions. The support was not because the price was attractive to buy, but because they can't sell their holdings when price is in a free fall like this. Hence we have seen some coordinated action to stabilize the ES and NQ in order to mark them up to a more attractive price to liquidate their holdings. The liquidation zone for ES has been dropped from 2720 to 2680. People are praying for price to get back to this zone in order to sell some more.
2. Back to European equities. Both CAC and Dax are back to their late Oct major support zone. If you got positions trapped, you are not alone. Because many institutional clients are crying to get out at a better price. The formation in CAC looks not that bearish and a clear line of resistance at 4945 can be seen from the chart. The stops behind this resistance line are likely to be tapped by the market maker to sell their holdings to. If you are interested in a slightly longer holding time, then you might be considering putting down limit order to sell the market at key resistance levels. Since the market has entered into a bearish cycle, sell the resistance is the name of the game until a big base formation has been formed and broken to the upside. But so far, there is no base formation in sight and it is not the right location to form a long term base. Therefore you could just sell and hold for the next few months.
1. Yesterday a relief rally was staged in the market. Along the way higher, the weak bears were shorting all along the way up.
In fact the best way (also the professional way) to short is to observe a corrective structure and short it when the structure is broken to the down side. By doing this, it is going to save a lot of agony in the market. notice that the market tends to squeeze the weak players on both sides before a real move. Whatever your conviction is, just don't stand in front of a freight train and fight the market by your three contracts ;p
In fact I was hoping for it to reach for the 4980 prior support now resistance area. But the market is too weak to even touch that level. So far there is no change in my bearish bias to the European equity.
2. Yesterday ES has been capped at 2670 by the weak bears. The selling was mechanical and has produced very little excess. Therefore I don't see the up auction has been finished yet, it is very likely for ES to fill the gap between 2670 to 2680 next week. On the other hand, the bulls are also weak that the weak bulls has liquidated before the NY close conveying the message of no/low confidence. Therefore, the range bounding market is the primal hypothesis I would have the rest of this week.
Interesting opinions. I agree and view the market the same way. I assume the corrective structure is the yellow channel support line in your screenshot? What do you do with false breakdowns? I like to anticipate more. Like in your screenshot, the relief rally at some point touches the dotted line (which I'm not sure what it represents but I imagine some moving average). That looks to me a good point to try a short, before confirmation.
The dotted line is volume weight moving average and it behaves like a moving average. Just for the PnF charts, the volume weighted average are much better behaving.
In fact, taking a small position short at the MA is a valid setup which I take from time to time, but a much more reliable short is when the trend line breaks.
You have to identify a retest of the trend line and a false break of a trend line. Usually, the first break of trend line is followed by a retest of that trend line, sometimes even making a new high in order to run stops. What you have to do is to watch the neckline. ONce that neckline is broken, then a break has been confirmed. It is very oftten to see a M top at the end of a trend line. Watch the neckline and trade from there.
1. Yesterday's price action was very text book like -- after the trend line break an impulse to the down side was observed.
Then the cac was making the corrective move to the high for the rest of the day. The second leg of this correction has topped out around 16:00 pm when I was already away. Due to the lack of participation, there is no strong follow through to the downside after that break down.
Today we might be able to see that impulse leg breaking at least yesterday's low. The bearish invalidation point is at 4944. If that level were to be broken, then the formation would change to something else.
2. A possible scenario in DAX is that a head shoulder's pattern is in the making. Watching the neckline closely. Once that line were to give away, then the bulls are immediately under pressure.
