Where now for the spx?

It appears that the head and shoulders pattern we reported as dead and buried on Tuesday 14th July, is still in play. The major test is whether we can break and consolidate above the midpoint between the respective peak points on the head and shoulders of the formation. We calculate this to be 944.7 (we are testing this area as I type):



Should we fail to close/consolidate above 944.7 we can expect a move lower, quite possibly back to our 200-day MA (currently at 867.8) in the coming weeks.

The Gold chart below illustrates a near identical scenario:



Here we can see the head and shoulders formation quite clearly. The retest of and subsequent failure at the midpoint between the respective peaks of head and shoulders, presages a retrenchment below the pattern's neckline.

Using this as our rationale, we have effected a small short position. This might prove somewhat premature as neither failure below nor consolidation above our 'midpoint' have yet to transpire. The head and shoulders pattern is indicative of bearish sentiment however, and so I feel vindicates us somewhat in our early entry.

Happy trading all!

Trade Update: S&P 500 short @ 917; EUR/USD short @ 1.4121

We were stopped out for -40bps. With retrospect I think our stop loss was slightly on the big size as hitherto the S&P500's loyalty to our descending resistance had been absolute. Should we have flipped our position with the fracturing of this resistance? Maybe....

With every trade, we must remember that no chart pattern is completely infallible, that is, perfectly applied technical analysis is no guarantee of a profitable trade. Conversely, a losing trade is not necessarily indicative of poor technical analysis and so as traders it is important for us to focus on that which we can control- not the outcome of the trade, but the quality of the thinking behind it.

With this in mind, we instituted a Fiber short @ 1.4121 (1850 GMT) citing a similar descending resistance line to that which we were watching so closely on the S&P500:





Please forgive me putting on my philosophical hat, but I think it's crucial that we understand the very nature of trading in order for us to one day excel at it.

Happy Trading all!

Trade Update: S&P 500 short @ 915.8

We were stopped out at our entry this morning, but have re-actioned a short position at a better price - 917. We intend to move our stop loss to break even once more and hold the position for the duration of the trading day.

Happy Trading all!

I'm not the type to say I told you so, but.....

Ok, let's not be premature with our celebrations! The markets are a great leveller of the overconfident! However, in the face of what seemed to be considerable upside momentum on the back of Intel's having released better than forecast earnings, we traded as the charts told us to and actioned short positions at 915.8 as the S&P500 met our trusty descending resistance line.

Instituting the position after market close is never ideal but the evidence for a retracement from this level (potentially back down to the 200-day MA at 869) is overwhelming. In any case we have moved stop losses to break even which means this is effectively a 'free' trade, if any such thing exists! Whatever happens, it would seem that we are at a critical level.

Currently minding 27 bps profit....

Happy Trading all!

S&P500: Head and Shoulders pattern not confirmed; what next?

The Flatbook readers: We are back with avengence! Our anticipated close below the neckline of the head and shoulders pattern on the S&P500 daily chart failed to materialize and so we did what objective, rational traders do when sufficient opportunity does not present itself - we stayed on the sidelines. That our 200-Day MA has acted as reliable and enduring support from 1st June onwards is worthy of note but more importantly, we will effect a sizeable short once again on touching the descending resistance that yielded our 931 / 954.4 short opportunities - our entry will be 915.8 (ish) should this transpire today -Tues 14th July (see charts below). Until then, we won't move.

The rationale for this trade is once again the extent to which the SPX has remained faithful to this descending resistance and that it has done so since mid May 2008. This may prove to be another very profitable position, as the path to 915.8 might well be followed by substantial market retrenchment. As per our ethos here at the flatbook however, we will trade what we see on the charts rather than engage in conjecture and guestimations as to where we see the market in 6-12 months time.





Let's be mindful this week of the start of earnings season with the standout pending release:

Tuesday - Goldman, Intel Q2 (earnings)
Wednesday - Rio Tinto, LSE (Sales and Trading Update)
Thursday - IBM, JP Morgan Chase, Nokia Q2 (earnings)
Friday - Bank of America, Citigroup, General Electric Q2 (earnings)

Not to state the obvious, but we will keep our eyes on actual results vs forecasted results, so as to be prepared for any potential surpirses.

Wishing you all a profitable trading day!

S&P 500: Head and shoulders pattern....

I've just been alerted to two game-changers:

1. There is a perfect head and shoulders pattern forming on the spx daily (see chart below). Intraday we may still look to action a long position but a strong close below the neckline - 881/880 will be an extremely bearish signal. In this event we will be short.

2. The 200-day MA (Moving Average) is sitting at 874.5 no less! Again, a strong close below this level will further underline the case for effecting a substantial short position.

I cannot overstate the importance of the above for the S&P500 going forward over the next few weeks. Should both of the above transpire - a strong close below the neckline and the 200-day MA- then the potential retrenchment over which so many are now musing, will surely materialise.



Happy Trading all!

Potential setups.....

This morning here at the flatbook there are two potential setups that we are mulling over. The first, brought to our attention by a friend of the flatbook, is an SPX long at 880. Indeed, since early May 2009, 880 has proved a key level of support for the S&P500 and we might be wise to speculate that it'll hold. Momentum however, is very much to the downside and many market insiders are forecasting a considerable retrenchment, something we considered well ahead of time on the flatbook- see our 3rd July post: Breakout to the downside on S&P500?
Nothing actioned yet, but we'll be keeping our eyes on this one....




The second of our setups is similar in form. USD/JPY appears to be in something of a short term decline so a long position is not a conventional flatbook trade seeing that we are going against the immediate trend but we anticipate the 94 level being a source of strength for the Dollar against the Yen. Again nothing actioned yet, but we are watching and waiting......



Safe trading all!

xa2rvy5p6c

Trade Update: Long GBP/EUR @ 1.1634

It looks very much like this is breaking out to the downside, hence we will cut our losses here at 1.611. :-(

Trade Update: Long GBP/EUR @ 1.1634

We are paying particular attention to this trade as we expect a break of the symmetrical triangle highlighted in the previous post. We are hovering around our entry point and break even. Staying nimble at this point will be crucial to mitigate capital risk.

Be careful out there! Safe trading!

Trade Update: Long GBP/EUR @ 1.1634

We will effect a long position at 1.1634 as we envision the ascending support line as highlighted on the charts below, holding in the short-term. We may see a breakout from the symmetrical triangle before the end of the week. The brave amongst us may be tempted to jump on the back of such a breakout (regardless of its direction) with prospective profit on this trade being substantial.





Looking to the week ahead, we will pay particular attention to the MPC's interest rate decision on Thursday. We will publish several FX trade opportunities over the coming few days as and when they arise, so stay tuned!

Happy trading all!

Breakout to the downside on S&P500?

As per our intention, we closed the other half of yesterday's 931 short ahead of the ECB interest rate decision at 915 for a further 160 pips. Not bad for less than 24 hours work, eh? Going forward, we've been monitoring the progress of what appears to be the formation of a symmetrical triangle on the S&P500:



Today's price movement however, saw us breakout from the triangle to the downside which suggests a substantial retrenchment could be on the cards over the coming weeks. We will not chase this move though, but will instead wait patiently for the market to present us with a high probability short entry. I anticipate this being around the 923-928 (time dependent, of course) once again utilizing the same descending resistance that manifested our 955.4 and 931 shorts. Not a bad precedent I'd say, but we'll only take action if this circumstance - a retest of our descending resistance - materialises.

FX wise, we're still watching and waiting. There are at least two pairs that may form high probability into next week.

Happy Trading! Wishing you all a great weekend!

Trade Update: S&P500 short @ 931

We took half our position off at 923 today and have shifted our stop loss to break even - 931 - on the other half. We'll see how it plays out tomorrow morning. Let me reiterate: We do not hold positions short term positions ahead of key data. Thus, we will close the other half by 1245 GMT at the latest.

Should either the ECB decision or the Non Farm Payroll data come in substantially different to forecast (ECB are forecast to keep rates at 1.00% and Non Farm is expected to come in around -360k) the brave among us may attempt to trade the news - a risky strategy, but one that can yield dividends if applied appropriately and in specific market circumstance. I for one, will probably stay away!

Looking ahead, there are several high probability FX setups in the offing that we intend to take advantage of. The middle of next week will most likely see these for fully so stay tuned!

Happy Trading!!!

Trade Update: S&P 500 short @ 931

We have executed a substantial short position on the S&P500, the motivation for which was extrapolated in yesterday's post. Essentially yesterday's 934.1 entry has become 931 today, as is the nature of a descending resistance line (highlighted below in red). We will look to hold this position for the remainder of the trading day. We will close the position, at the very latest, before the ECB rate decision tomorrow- 1245 GMT - and non-farm payroll data at 1330 GMT.

US Bank Holiday this Friday ahead of Indedepnce Day w/e; lower volume is to be expected then.

Happy Trading!!