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.