Daily Archives: August 26, 2010

La Dolce Vita

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Most mornings, I have the time and inclination to make breakfast for my cubs. They have been insistent on having crepes most mornings (partly courtesy of our egg-laying hens hopping around outside), but today I thought I'd expand my very limited repertoire and make blintzes instead.

These were especially "local", since they had our hens' eggs and some wild blackberries my little girl and I picked a few days ago. What does this have to do with trading? More than you think!

0826-blintz

Classic Reversal Setups (by Springheel Jack)

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There was much discussion yesterday about whether yesterday's reversal
would be a one day wonder or lead to a deeper reversal. I was already
leaning towards a deeper reversal and after looking at the overnight
action and I am leaning very strongly in favor of seeing a rally on ES
into the 1070 area over the next two days.

We hit some key targets yesterday. Not only did we bounce
at the key Feb low support level at 1037 ES, but we also hit the top of
the rising channel on my 30 year treasuries chart and broke the short
term EURUSD declining channel. I'm seeing a number of short term
reversal setups and I'll go through the main ones.

On long treasuries I was wondering whether my steep rising channel was
breaking, but they fell back after the morning and closed within the
channel. I'm expecting a move back to the lower trendline of the
channel, though it still looks a courageous short and it may trade
sideways rather than down:

100826_T30Yr_Daily_Rising_Channel

I posted my SPX:VIX indicator a couple of weeks ago showing the target I
would expect to be hit on this downswing. We hit it yesterday, which is
a signal that we are likely to get a respectable bounce here:

100826_SPXVIX_Daily_Wedges

On the SPX 15min chart I'm showing the declining channel from the August
high. We hit the lower trendline of that channel at the low yesterday
and I would normally expect to see a return to the top of the channel.
In that circumstance an H&S pattern will often form, and as you
can see we have the left shoulder and head of a possible IHS formed now.
I'm expecting us to make the right shoulder today before moving up
towards the top of the channel:

100826 SPX 15min Reversal Setup

I've gone into a bit more detail on the ES 60min chart. You can see that
we reversed at the obvious level overnight and I've added a very
possible short term rising channel to take us back to the top of the
declining channel from the August high. If I'm right about that channel,
then I'd expect a low in the 1046 to 1049 ES level this morning or
early afternoon:

100826_ES_60min_Channels

Looking over the USD currency pairs this morning I'm also seeing some
classical reversal setups. EURUSD has broken the recent declining
channel and is in a small ascending triangle from the recent low. I'm
expecting a pullback to the lower trendline of that triangle in the
1.265 area before a break upwards to retest the recently broken
broadening ascending wedge on the daily chart at the very important
resistance level at 1.292. If I'm right about the initial retracement,
or on a break with confidence of 1.2725, I'll be taking a spec long for
that target:

100826_EURUSD_60min_Declining_Channel_Broken

GBPUSD has broken up from the falling wedge of recent
days, and I'm expecting a retest today of the broken wedge upper
trendline in the 1.548 area before a move towards 1.562, which is the
target if the falling wedge is developing into a declining channel:

100826_GBPUSD_60min_Falling_Wedge_Broken

On AUDUSD the rising channel from June has held so far, and we have
another potential little IHS forming. I'm expecting a reversal to the 88
level before the IHS plays out towards the target at 90.1:

100826_AUDUSD_60min_Possible_IHS

It may go the other way today of course, but given the key levels hit
yesterday, the odds have to favor a multi-day reversal here, and that's
what I'm expecting. Equally we may move straight up towards the upside
targets here, but given the potential IHSes forming, there is a good
chance of a drop in the morning to set up some good short term long
entries.

I have a bad cold today and in consequence I've had to change my travel
plans this week and I won't be able to do a post tomorrow, though I
might be able to put a couple of charts up after the close tonight.
Everyone have a great holiday weekend! :-)