In the Morning notes for Friday I wrote to the Subscribers of DAILY DOSE OF DAX Service: “Seasonality of US holidays are –> markets rarely going down into them.” And as we can see, SPX managed to close (barely) positive, going into Labor day.
Now we are entering first trading week of September, and US markets are closed on Monday. That means likely lack of liquidity on European markets as well. There will be several PMI releases this week, some Chinese PMI was already published on Saturday. As every first week in the month, we will have NFP report on Friday.
Last week idea was that nothing is resolved on US-China trade relationships, and that higher odds scenario for both DAX and SPX would be breakdown of the range and continuation to the downside. However, market once again showed us that it is very sensitive to news - "Headline risk" again, and reacted positively to both sides softening their stance. So we got a breakout from the range on DAX, and price back to top of the range on the SPX.
1. SPX Daily chart
SPX is again on very important inflection point. Note the large unfilled gap in the range.
2. DAX Cash Index Daily chart
Technically speaking, breakout on DAX has to be confirmed, to see will it stick or not. Interesting is that gap on 11,839 is not filled, and that price could test the top edge of broken range. Price is still between DMA50 and DMA200 on both indices.
You can always watch indices trough Index chart, and Futures/CFDs charts. Here, on the index chart, we can observe how one large gap was acting as support with both top and bottom edge. Well, the same could happen with the large gap above the current price, if we get there. Note the fibs also.
3. DAX CFD Daily chart
Inflection points are: 11,870 / 12,000 / 12,200
4. DAX Cash Index 60 min chart
As written inside this chart, majority of August activity in RTH Sessions was inside 11,550-870 range. From this range, we could then look where are 100% range expansions.
Looking at all of this DAX charts, and current range breakout, what is next, and what can we conclude? Market is news sensitive, and can still turn down from here. However, buyers showed initiative, and now must defend this break. Turning below 11,840 and HOLDING below, would mean a false break, and such failure would be very bearish for DAX, targeting bottom end of the range. If buyers manage to hold above the top of the broken range, next task in front of them is break above 12,000. Above this level there is a large gap - on chart #2 - that can act as resistance before the 12,200 inflection point from CFD (or Futures) chart, #3 . So, buyers have the upper hand, as long as they are above the top of the broken range. Remember how this month started? By that HUGE gap down between Aug 1 and Aug 2, on Trump tweet. So, what is going to be next? I don't know, markets dependant on US-China trade war informations - I will watch SPX, and STAY OPEN for both scenarios on DAX, confirmed or false break. Enjoy higher volatility while we still have it.
Range by itself is not a bad thing, especially if it is wide enough to give us good opportunities. How to trade that kind of range, breaks, volatility? Here are opportunities based on context and predefined zones, on Friday, Aug 30:
No need to trade every 5 minutes. Money is made by waiting. Waiting for the price to come to you. Make ONE good trade and stay out of the trouble, and even that is OK on daily basis. There are dozens of Examples how trading plan and predefined S/R zones can help you to execute on inflections point, thus lowering your risk and increasing your chances to land a winner. (I will soon update that page with more examples.)
Cheers, StrayDog