Darshan's Blog

Darshan's Daily Market Ponderings

Monday 25th January, 2009

Markets Find Some Support or Not?

Happy Monday all!

Well well well - what have we here? The FTSE found support and so did the Dow on Friday - just as my blog warned you. I hope you did not short the hole - as they ran stops at the end of the session on Friday. However, what now?
Well without doubt there is technical damage on every major market in the world. I've spent a good while looking through the price action and the charts - trying to work out what the deal is with the forex moves and the market moves. I think I might have it clearer now. Essentially it all comes down to that 1.40 level option barrier on the Euro - which expires at the beginning of Feb. Coupled with talk of GS having gone in heavy on the short side with 1.38 puts. Always a worry whenever they telegraph anything - bluff or not?

Anyway, so the way I see it - so far 5180 has proven to be a floor on the FTSE (on a closing basis) and so that is the level to break to take it to the maximum downside I see (which might/could come next week, rather than this week - due to that 1.40 level on the Euro) of 5000-4950. Similarly the Dow can retrace back up to as much as 10400ish and then that would allow it to drop 600 points to 9800 (possibly a spike to 9700) - by creating a bear flag at the 10400 level. (Obviously if we go much higher than that - correction is over - but 10450ish serves as a great stop-loss, if the opp to short at 10400 comes up).

So there you have your levels. The reason I don't think those will be broken any further is because we finally have what all top-callers should have been waiting for - the daily and weekly difference setting up. You see the daily indicators are being rolled so as to allow another cycle up, whereas the weekly is breaking down (finally!) - so you've got that perfect opportunity to create a negative divergence on the weeklies with one last new high on the indices. After that we can properly sell-off but that could be weeks away yet.

Therefore, with today being a slow news day - I see the market consolidating. We have major macro-economic releases over the rest of the week - so today, everything will take a rest and the volatility will begin again tomorrow. Remember, the upside should be capped to 10450 on the Dow, 5350ish on the FTSE 100 and that should pave the way for a further fall over the next week and a bit towards 10000 and 5000 respectively. In terms of forex trades, I would recommend shorting AUD/USD with a stop loss above 0.9250 and with a target towards 0.87 as a swing trade. Once in profit, move stop to break-even and trail your stop down with your profits. Similarly - keep selling the spikes in the EUR/USD pair - as long as we stay below 1.43, we should head down towards 1.38 - but most likely not until next week.

That is all for this week - it will be fun and games galore - don't get caught up in the whipsaw. You have two ways of trading this - waiting for those higher levels and then going short, relaxing and returning when your targets get hit or by scalping this like a maniac. The former is probably a much safer bet.

Happy trading and good luck!

Darshan

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