Guideline For Friday

The market opened with a gap-up on Thursday most likely from the Fed buy programs, designed to trigger a short-covering rally, and it did exactly that in the morning.

Severe global credit contraction effect showed it hands at the end of the day as selling came back with a vengeance, an indication, an indication that credit contraction is getting serious, the market looks set to sell-off on Friday, if key support is broken.

Key support for Friday are 3495 for NQ, 1782 for ES

-- Above key support is bullish and likely rally.

-- Clear break below key support can ignite new round of selling.

The Federal Reserve has created a truly global problem.  A big chunk of the trillions of dollars that it pumped into the financial system over the past several years has flowed into emerging markets. But now that the Fed has decided to begin “the taper”, investors see it as a sign to pull the “hot money” out of emerging markets as rapidly as possible.  This is causing currencies to collapse and interest rates to soar all over the planet. Argentina, Turkey, South Africa, Ukraine, Chile, Indonesia, Venezuela, India, Brazil, Taiwan and Malaysia are just some of the emerging markets that have been hit hard so far.

In fact, last week, emerging market currencies experienced the biggest decline that we have seen since the financial crisis of 2008.  And all of this chaos in emerging markets is seriously spooking Wall Street as well.  The Dow has fallen nearly 500 points over the last two trading sessions alone.  If the Federal Reserve opts to taper even more in the coming days, this currency crisis could rapidly turn into a complete and total currency collapse.

Guideline For Thursday

After just one pullback-up day, major indices, the Dow, S&P and Nasdaq futures opened with a large gap-down on Wednesday and then traded sideways, a very bearish sign. 

The day low were at supports, but given the strong momentum of the current decline, support will be vulnerable unless they can rally above their respective key resistance level and then trigger short-covering and profit-taking ahead of the weekend.

With several central banks raising their interest rates in order to defend their collapsing currencies, contracting global liquidity, breaking below support is an indication that the markets are in crash mode, and has the potential to turn into a large decline.

Key support levels area 3450 for NQ, 1765 for ES and 15650 for YM

Key resistance levels are 3495 for NQ, 1782 for ES and 15,800 for YM

Guideline For Wednesday

After several large down days, the market decline took a paused on Tuesday and closed at the day high, setting up for another rally day on Wednesday at least in the morning, (and likely with a gap-up open), before the FOMC policy decision announcement in the afternoon. 

Anything can happen after the announcement, the direction will depend on the Fed's policy decision.

Key support level for Wednesday are 3595 for NQ, 1786 for ES 

--- Above key support level, profit-taking / short-covering should continue, with resistances at:

3520, 3540, 3550, 3575-3580 for NQ, and 

1795, 1805, 1810-1815 for ES

Guideline For Tuesday

Another large down day for major indices on Monday as credit crunch continues to intensify. CBOE volatility index, the fear index, VIX has not spiked too high, an indication that most investors are still buying the decline, implying that there are more room for the market to continue down.

Major support for NQ are 3450 and 3400, for ES supports are 1765 and 1720 and for YM major support is 15,500.

Key support for NQ on Tuesday is 3495, and 1770 for ES, and 15,725 for YM. 

There are still some room for the markets to decline further before hitting major support zones, 

-- Breaking below key support level will trigger another round of algorithm selling.

-- Above key support implies consolidation or short-covering / profit-taking rally

Guideline For Monday

Chinese Credit Crunch intensifying, China Halt All Bank Transfers

It appears that China's Credit Crunch Liquidity Crisis ahead of this week impending default of Credit Equals Gold wealth product is intensifying, as the Chinese Central Bank has just ordered all domestic commercial banks to halt all renminbi bank transfers for 3 days, and renminbi foreign currency conversion for 9 days.

 

Bank-run fears continue - HSBC restricts large cash withdrawals

Global equity market took a beating last Friday as global credit crunch fears intensifies. Without substantial liquidity injection from central banks around the world the stock market is going to tank even harder, with or without a pause.

Key Support Price Level to watch for on Monday is 3530 for NQ, 1780 for ES, 15,800 for YM. 

-- Holding above support implies sideways consolidation pause day pattern or a short-covering rally as short sellers take profit. 

-- Breaking below key support price level will trigger another round of algorithm short-selling.

-- Potential support for NQ below 3530 are: 3520, 3495, 3450, 3400

-- Potential support for ES below 1780 are: 1765 and 1720 as stronger support level.

-- Potential support for YM is 15,500

Guideline For Friday

Major equity indices opened with a gap-down on Thursday as credit crunch started to hit China financial system. The US equity market may be making a top, with market configuration between the Dow, S&P 500 and Nasdaq similar to the 2007 stock market top.

In 2007 market top prior to the crash, Nasdaq continued to move higher for at least 3 more weeks after the Dow and the S&P 500 has started its downtrend.

 As always, at market top, most traders and investors are very bullish, selling off blue chips stocks in favor of growth technology stock represented by Nasdaq stocks, hence at market top, Nasdaq stocks will stay strong for a while longer. 

Going forward, looks for Nasdaq stocks to remain stronger than the Dow and S&P stock for about 3 weeks longer.

For Friday, without another market-moving news, the market should consolidate or move higher on short-covering. To do so, the indices should stay above key support, 3590 for NQ and 1818 for ES.

More selloff to come on a break below key support levels.

-- NQ resistance are 3520 and 3535.

-- ES resistance are 1825 and 1830

A wave of Chinese default may be underway and could spread way beyond China.

The $23 Trillion Credit Bubble In China Is Starting To Collapse

On Friday, Chinese state media reported that China Credit Trust Co. warned investors that they may not be repaid when one of its wealth management products matures on January 31, the first day of the Year of the Horse.

The Industrial and Commercial Bank of China sold the China Credit Trust product to its customers in inland Shanxi province.  This bank, the world’s largest by assets, on Thursday suggested it will not compensate investors, stating in a phone interview with Reuters that “a situation completely does not exist in which ICBC will assume the main responsibility.”

Guideline For Thursday

Uptrend continued on Wednesday with NQ making another higher-high, but started to consolidate sideways in the afternoon, staying above 3620 support.

For Wednesday, as long as 3620 support hold NQ should resume its uptrend, target a higher high. A clear break below 3620 however, implies it is going to drop down to lower support level before running back up again.

Next support is 3610 support. As long as it does not clearly break below 3610 NQ should resume its uptrend, target a higher high.

Breaking below 3610 is an indication that NQ is going down to the next support zone, 3600

Guideline For Wednesday

A large gap-up open, then dropped down sharply to close the gap. on Tuesday. After finding support NQ start to rally and rally all the way back to the morning high.

For Wednesday it should continue to rally higher immediately without consolidation, as long as it does not pullback down below 3600.

A pullback down to below 3600 is an indication that NQ is going into a consolidation mode first support is 3575

Guideline For Tuesday

Following 2 sideways consolidation days, both Nasdaq NQ and S&P 500 ES are set to trend up on Tuesday. 

However, in order to do so, any decline should not breach key support levels, 3565 area for NQ and 1835 area for ES.

Should NQ and ES be above their respective key support price zone on Tuesday morning I would be looking to be on the buy mode. 

-- NQ target a break above 3610 swing high, 

-- ES target a break above 1846 swing high.

To confirm uptrend on Tuesday, NQ needs to clearly break is 3600 for NQ and 1838 for ES.

Guideline For Friday

After making another all time higher high on Wednesday NQ traded sideways all day Wednesday and all day on Thursday, but stayed above breakout price level (above prior high 3595).

The longer NQ does not continue to trend higher, the more vulnerable it will be to profit-taking decline, which if it breaks below key support level, could trigger a series of algorithm sell programs, so it is very important for NQ to starts trending back up again the sooner the better, otherwise profit-taking could set in.

Support/Resistance price level for NQ on Friday is still 3595, but key support for NQ is 3585.

-- NQ remains in a bullish mode above 3595, implies NQ should continue to either trade sideways or trend up.

-- NQ will be in a bearish mode below 3595, but it needs to clearly break below 3585 to attract strong selling.

Guideline For Trading NQ On Thursday

NQ opened with a gap-up and rallied into another higher-high in the morning, but then traded sideways most of the day, closing at key support price level 3995 area.

With the rally on Wednesday NQ is now in overbought condition both on the 60-minute chart and the daily chart, vulnerable to a sharp pullback down if pullback breach key support zone.

For Thursday key support zone is 3995.

-- As long as NQ does not clearly breach 3595 support, NQ remains in bullish mode.

-- A clear and sustained break below 3995 is an indication that NQ may be going for a larger pullback down. 

-- Breaking below Wednesday's low could trigger algorithm sell programs that has the potential to tank the market.

Guideline For Wednesday - NQ

With the Fed announcement on Tuesday that they will basically do whatever it takes to support the equity market and then backed their words with buy programs NQ (and all major US equity indices, Dow, S&P 500, etc) rallied fast and hard with NQ making a higher-high above yesterday's high, essentially reversing the trend back from downtrend to uptrend on the daily chart. 

For NQ on the daily chart, the uptrend should continue with or without a consolidation, as long as any pullback down does not clearly violates key support zones, which for Wednesday is 3555 for NQ.

As long as pullback down in NQ does not violates 3555 support, NQ should continue to rally up to new highs.

For Wednesday morning, NQ above 3575 is an indication that the fast trend up is still continuing, next resistance is 3595.

Below 3575 in the morning is an indication NQ is going into a pullback mode. As long as it does not breach 3555 support NQ should continue back up after consolidation.

Clearly breaking below 3555 indicates NQ is reversing its trend back down.

Guideline For Tuesday

The bigger picture for NQ:

NQ has been forming a bear flag pattern on the daily chart, trading just above its 20-day moving average since last week, and ready to break and tank down hard at anytime, and so it did on Monday, breaking  down below its 20-dma, see chart below. 

It looks like NQ would need to drop down to 3450 before it goes into an oversold conditions, but the next major support is not until 3400, so there is still plenty of room for NQ to go down before going into an oversold condition with a strong support zone.

Recap & Tuesday's Guideline:

NQ opened above key support on Monday and tried to rally, but without much momentum, attracted some profit-taking that started to trigger a whole series of algorithm sell programs that took NQ quickly down to support zone mentioned in my precious blog, 3500 area. The Dow and S&P 500 also tanked hard on Monday. 

At the end of the day, profit-taking at support caused the market to rally into the close. For Tuesday, I will be looking for another lower low, below Monday swing low, but, as long as any NQ pullback rally does not clearly break above 3523 area.

A clear and sustained break above 3523 area could trigger a short-covering rally, with resistances at 3530 then 3540.

Key price level for Tuesday morning is 3510.

-- Opening and staying below 3510 is an indication that NQ is going to tank again to lower-low, next support is at 3450.

-- A clear and sustained break above 3510 implies NQ is going into a sideways consolidation mode, likely an inside day, with resistance at 3530.

Guideline For Monday - NQ

A sideways pattern for NQ on Friday, downtrend in the morning and rally in the afternoon. I am looking for NQ to continue to go up on Monday, as long as pullback does not clearly break below key support zone, which is 3540 for Monday. 

A clear and sustained break below 3540 on Monday will change the technical outlook for NQ. If so, I will be looking for NQ to trend down to support in the 3500 area.

Gold continued to rally on Friday. Key price zone for gold is 1250 (resistance/Support) on the daily chart. 

A clear and sustained break above $1250 is an indication that gold is going into an ABC pattern move up, with upside target at $1420, but the first major resistance that has the potential to cause a $30 to $50 pullback is at $1360. 

Guideline For Friday

The market traded sideways ahead of the often market-moving employment report due before the market opens in the morning. it is difficult to say whether the market reaction is going to be bullish or bearish but we would already know where NQ will open when the market opens.

Key level to watch for NQ at the open is 3550.

-- Above 3550 implies bullish market, upside target is a break above prior swing high 3595.

-- Bearish below 3550, supports are 3533, 3510

Guideline For Thursday - NQ

Nasdaq continued to make another higher high on Wednesday, the third days in a row since the low last week Friday, breaking through resistance.

Support/resistance level for Thursday is 3560.

-- Above 3560 implies NQ implies NQ will continue to rally, next target is 3595 resistance, prior swing high.

-- Below 3560 is an indication NQ is going to lower support level, 3545.

Guideline For Wednesday - NQ

Monday and Tuesday rally from support has not ran into strong resistance 3557, which was prior swing low from December 28, now resistance. A clear break above 3557, however, should ignite more short-covering which is likely to propel NQ up to the next resistance which is prior swing high 3595.

Failure to clearly break above 3557 is going to attract sellers, pushing the market down to supports, with the first support at 3532. 

If 3532 support does not hold NQ will drop down to either 3520 or 3505. It would need a very bearish market internals to break down through 3505 support.

NQ Guide For Tuesday

NQ dropped down to support on Monday and then traded sideways for the rest of the day. For Tuesday if support holds it should either continue to consolidate sideways or rally back up to resistances.

Inflection price level (support/resistance) for Tuesday is 3520.

-- First Resistance = 3530

-- First Support = 3510.

-- Failure to clearly break below 3510 support could attract buying, but it needs to clearly break above 3530 resistance to trigger a short-covering rally, with upper resistances at 3550 and 3565.

-- Selling algorith will come back in below 3510, with lower support at 3495 and 3485.

Guideline For Monday

The equity market sold-off hard on Friday, closing at the low of the day. The sell-off is likely to continue in the morning on Monday, with a gap-down open, but we shall see what will happen as we get closer to the open. 

On a gap-down opening scenario, if support hold, buying should come in and cause the market to rally to resistance. If support breaks, selling algorithm could cause another large down day.

On a gap-up open, however, with many traders still holding short position, it could trigger a short-covering rally, with resistance at 3555-3565.  More short-covering on a sustained break above resistance, but look for selling to come back in if NQ is not able to break through resistance. 

Support for NQ on Monday is 3500-3510, Resistance for NQ on Monday is 3555-3565

Guideline For Friday

NQ opened with a large gap-down and then ran down to just below prior swing low before consolidating and traded sideways.

Keep in mind that Friday is usually a bullish day, however, to bet on the bullish side, we want to see price stay above key support level.

The sideways action on Thursday following a decline is either a setup for the next down-leg, or a setup for the next rally leg up. But, a bearish first trading day of the year is not good for the general market. With most traders and investors currently wildly bullish about the market, a sustained decline could feed on itself as training stop-loss get overrun -- and it could cause a cascade selling that can get out of control

Key support price level for Friday is 3555.

-- NQ needs to stay above 3555 to stay on the bullish side, resistance at 3575.

-- Bearish below 3555. with the next support at 3537 area.

Gold rose nearly 2 percent on Thursday as many traders sold off their stocks and move their funds out of equity and into precious metals.

Silver rallied about 4 percent for its biggest one-day gain since mid September, while platinum group metals also jumped 2 percent in tandem with gold's rally.

New positions initiated by institutional investors at the start of the new year and some bargain hunting following the metal drop to a six-month low in the previous session triggered bullion demand. 

The inverse correlation between gold and equities could strengthen in 2014 after bullion's tumble and the

stock market's strong run last year. As investors take profits from the equity market after its break-neck pace of growth last year, gold should be a prime beneficiary of capital inflow.

Guideline For Thursday

The equity market rallied hard into the end of last year 2013 on the back of the Fed's buy programs + the inflow of funds from the collapsing bond market + the shorts covering ahead of the generally bullish first week of January.

The uptrend should continue on Thursday, with new funds that usually come in at the beginning of the month, being put to work, but there may be some resistance for NQ at 2600-2610 that can cause a pullback. How big will the pullback be, only time will tell, but as long as it does not breach support the fast uptrend should continue.

Support for Thursday is 3585 in NQ.

-- Any drop that can stay above 3585 implies the fast uptrend is continuing, resistance is at 3600-3610.

-- Breaking below 3585 is an indication NQ is going for a larger pullback before rallying back up again, with the next support at 3575.