SPX Nearing Lows - Expect a Break Through!

Good Morning,
Sorry for not posting for a few days. The mid-week holiday in addition to a stomcah bug that hit all 3 of us kind of put a damper on the writing. But, I am back and I have a ton of charts to go over.
First, as always, the fundamentals. We just received some "recent" data in the form of ISM - the headline was higher than expected, as was the employment component (more on that in a moment). New orders stayed a hair below 50 (contraction/expansion level).
Tomorrow, we have Trichet and Bernanke on the docket, followed by ISM Services on Wednesday and claims on Thursday. In addition on Thursday, we get interest rates/statements in the UK and the ECB.
This all leads up to the BIGGY of them all - unemployment on Friday. Remember, in "normal times" when there isn't intervention, a big miss can move the markets in one direction for days... So, with analyst expectations around 50k, what are the chances we come in way above (+150k and above) or way below (-50k and below)? I am guessing that it is a 50/50 chance either way with seasonalities (remember, this is a September report and we could have back to school seasonalities). So, I am overall OK with the 50k and I am not going to go into the number with any additional protection as:
1. guessing it is a crapshoot
2. guessing the move in equities based on a big miss either way is a crapshoot (see government intervention)
OK, enough of the fundamentals - let's get to the technicals. First up, long term charts in forex. First USD/CAD (so you can see the drop in oil prices and the strengthening in the USD (due to not only oil prices down, but "flight to quality").

Past performance is not indicative of future results
Note this is an 11 penny move in about 2 months. Now the AUD/USD:

Past performance is not indicative of future results
Note this is a 14 penny move in the same timeframe. We will look at Gold in a moment to see if Gold prices are finding support and maybe if that translates to some buying opportunities in the AUD. REMEMBER (AND NOTE): MANY OLD RELATIONSHIPS BETWEEN EQUITY SECTORS AND CURRENCIES HAVE CHANGED, SO YOU MUST RE-ANALYZE BASED ON RECENT FUNDAMENTAL SHIFTS!!!

In other words, here is the trading psychology part: BACK TO BASICS - know what is driving your stock, future, currency, etc... and how to develop a trading plan using technical analysis and the correct fundamental background data.
Alright, sorry for the trading psychology tangent, but you know it is coming - like a left hook!! I will never present, write or talk about trading without bringing in trading psycyhology.
OK, day traders, here we go. Let's zoom in on two double fall line trades (thank you ISM number) for boosting equities and thus weakening the dollar (momentarily). So we had equities up, AUD up and then equities overbought, so AUD overbought. The first chart is a DOUBLE FALL LINE TRADE on a 15 minute chart and then, as equities sold off from up 61 points to flat and stabilized, AUD stabilized. So the second chart is a DOUBLE FALL LINE TRADE on a 5 minute chart:

Past performance is not indicative of future results

Past performance is not indicative of future results
Since this writing, all currencies are weaker against the dollar as equities have sold off and gone back towards the days lows (hence the title of today's post).
So, in SPX we have 1110 as the low and we are only about 11 points away:


Past performance is not indicative of future results
As you can see we are dangerously close to the lows. Also, if you remember my last post, titled "Line of Death", take a look at this picture. Any time we retrace more than the 78.6 level, chances are very, very high that we will retest the lows.




Past performance is not indicative of future results
So first up, 1113 and then the big low closer to 1100. Some traders and investors will use it as a buying opportunity. There will be a tug of war (maybe) and we will see who wins (buyers or sellers). Me personally, I am looking to put some money to work, but not until we get to more attractive levels. Depending on the heavy fundamental calendar, I will decide where "attractive" is.
With Gold, support is coming in just below the 160 level - again, I am not a huge fan of trading GLD, so aside from posting the chart, I have no comment on future direction!! If USO drops a bit further, I may comment on picking up that commodity.





Past performance is not indicative of future results
All told, we have a very, very busy week ahead of us. Trade the appropriate size and most importantly, wait for your spots - we should get some good intraday swings that set up low risk, high probability trading scenarios. ALWAYS USE STOPS IN THESE MARKETS as things can change in a heartbeat!
Follow intraday at Interbank FX Connect - "thelocalstake"

Happy Trading and Be Environmentally Cool
Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.