Both SPX and DAX had a down week. Consolidation is still in progress.
Chart #1 - SPX and DAX Index Weekly
Week ahead of us
Important Chinese PMI news on Monday - Manufacturing PMI, Non-Manufacturing PMI and Caixin Manufacturing PMI. These news have the potential to influence US and European markets in their Overnight Session. US PMI news: ISM Manufacturing PMI and ISM Non-Manufacturing PMI will be released on Tuesday and Thursday. Then on Thursday, Oct 3rd, Day of German Unity - German stock market closed, DAX futures will work.
NFP report on Friday, and Fed Chair Powell will speak.
NFP week as the start of the month can be challenging, since markets tend to wait for this event. US markets are under political "jitters", but so far without any serious sellers whatsoever. Bigger liquidation we can expect only in case of strong close below inflection point. Previous week I wrote "We didn't get the test of the 2942, so that is one of the scenarios." We got that on Friday. Some gaps are filled, SPX filled the one from Aug 1st.
What happened, and what can happen in the future?
Chart #2 - SPX and DAX Index Daily
On SPX cash 2942, on ES futures 2947 - market did test that inflection point on Friday and buyers reacted there as expected. DAX has a new unfilled gap, on 12,289.
Let's go lower now, on 240 min charts.
Chart #3 - SPX and DAX CFDs 240 min chart
Inflection point on SPX was tested, we can also note the possible bull flag there, and bullish divergence on this timeframe (not shown on chart, but you can check that on your own, on MACD and RSI). Unlike SPX, DAX has a range - but PA was not really schoolbook there. First we got a false b/down of 12,300-500 range, only for price to go to the middle of the range and then breakdown, followed by backtest (red arrow), that again didn't provide any downside follow through. Bias still not quite clear, so we must concentrate our attention to clear days, and avoid being chopped when bias and price movement is not so clear.
Chart #4 - FDAX Daily with trendlines and ATR
Current daily ATR on DAX is around 150 points. Contractions of ATR led to bigger moves in the past. Market is still below downsloping trendlines. SPX is still in the range, and bounced from inflection point.
What scenarios we could get?
Chart #5 - ES Daily
IF this is a valid bull flag with bullish divergence, breaking that flag to the upside would confirm market wants to test ATH level above, and up sloping trendline resistance would be next - around 3050, then new ATHs.
Bearish scenario require bull flag failure, market firmly going below inflection point (2947 futures, 2942 index), strong close below this level and going lower toward bottom edge of former range (2820). IF that don't hold, toward 2730.
Chart #6 - FDAX Daily
Bullish scenario on DAX requires breaking that range from Chart#3, and then next swing tops would be targets. This will unlikely happen without SPX bullish scenario. Bullish scenario v2 on DAX can include SPX ranging around, while DAX goes down all the way toward 11,850 area, filling all those unfilled gaps from Chart#2 and starting big bullish leg from there.
Bearish middle term scenario on DAX is just that - filling all those gaps, since for large bearish scenario it need to go below 11,850 toward Aug lows (11,266 on index and 11,257 on futures). Than IF that don't hold - toward Dec 2018 low.
We can offcourse make such scenarios, but for daytrading it is much more important to fully understand the context and price movement INTO the day, always giving more importance to the RTH session vs. Premarket session. Good examples were last Wednesday, with clear sellers dominance, and Friday - with neutral-bullish small time frame bias, long from open, short on better resistance zone. We have to be aware not all days are as good as others, and opportunity potential is not the same.
Recent blog article: About patience in trading.
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