On The Level: Daily Trade Levels & Set Ups
Introduction
Most of you who follow me on Twitter know I regularly post throughout the day on the Dax40 and US markets price action. What I provide here on my website via my Members pages is my daily pre market open Dax40 charts, plan and commentary of what I´m looking at and how I´ll trade the day ahead. It includes my S & R levels, patterns I´m watching for the day and set ups I will be looking to trade. I also note the S&P500 with an initial view. It is detailed, informative and accurate - see example below.
The analysis is available usually at least a 30 mins before the CET open so you can read and match whatever you think is useful to your own ideas and plans for the day ahead. I also post a review of the RTH session each evening for learning repetitive set ups.
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Below is an example of my analysis. I always aim to be as specific as possible and never try to hedge my bets. I will tell you what I intend to do and why and review performance each evening. My hope is that you find it a useful and inexpensive educational addition to your own daily trade planning process.
Dax40. Thurs 22 09 2022.
Pre RTH Kick Off Notes
Gap down in futs right from our yesterdays 12530 Support zone (being retested as I write) . Lows are held at 12455 exactly on our lower S zone (the power of S&R zones - as if we needed further confirmation!). PCC is 12767 so watch for possible inventory correction.
Data
No data other than the UK official bank rate which wont have much / any impact on Dax.
Overview
Quite a bit of volatility on the FOMC - to say the least! Dax 150 pts down on the release, 220 points up during the presser, 280 points down again afterwards into the US close and gap down on the Futures open! Same reactions in the US. We did say this event was likely to be a big one and set the tone going forward! Powell again clearly stated the Feds intention to fight inflation at all costs and increased the odds of a higher terminal rate by year end and early next - which is obviously being negatively digested by traders and investors in the immediate aftermath. However we can see from yesterdays S&P chart below that the days after the FOMC can also be very volatile so it remains to be seen whether we continue down or stage any sort of relief rally. Today could be a similarly "big" day with plenty of action.
With such a drop late last night the first thing we can expect is a push back up in the RTH as participants carry far more weight than any afterhours pa. As such I´ll be watching for an initial move back up the chart with eyes on 12600 and 12700 areas as first targets. Quickly moving all the way back up to 800 would negate all of last nights closing sentiment where we would likely get a good opportunity to short as a first test scenario. We know markets don't simply go one way on data (indeed they usually retrace) and initial longs have good odds from the open (and possibly from 8am). Watch pa for the 1st 30 mins - hour after the RTH open to get a read for long opportunities. If I'm wrong we´ll know soon enough and be quick to change to a more shorts based scenario.
At the same time we continue to be overall bearish so I will also be watching for shorts from higher prices as potential pullbacks to get on board. The major HTF (higher time frame) S zone at around 12400 is getting closer each day. Any dip down today to test will likely give us a bounce in the first instance. A clean break opens up new territory which has not been traded since the end of 2020. Whether it is a sustainable bounce at 12400 given the increased threats of conflict, further restrictive / higher rates increases to come in the US and likely in Europe and the subsequent knock on effects for inflation and recession concerns is yet to be seen. But I expect 400 to hold for today and give us a long scalp opportunity if it is tested. Risk reward is on our side here for longs. Again if wrong that's fine - I´ll trade my plan until proven wrong.
The US broke its multi day lows into the close last night - more on this below
The first zone to observe is the 12550 area (being tested right now as I write) and todays R1 at 12600 - a key level. A break up over 600 opens up a fuller retrace of last nights big push down post the FOMC with 12700 mid way and 12800 at the top of the bear leg. In my view it will take strong bull power to break higher above 12800 but as ever we keep an open mind and go with the pa we get - same as for what happens at 12400.
Always the best plan is to stick with S&R levels and zones and take our trades based on what happens at these prices.
Levels
R1 - 12600 - 12620
R2 - 12684 - 12705
R3 - 12800 - 12820
NB: note the fib on the down leg
S1 - 12430 - 12455
S2 - 12385 - 12405
S3 - 12320 - 12345
Bullish scenarios
Any push up and holding over our first zone of interest at @ 12550 opens up a retest of 12600. Remaining above 600 keeps higher levels in play up to 12800 the top of the FOMC bear leg. Similarly any push down to test the 400 area and a strong bounce back up could signal that we are not going below our critical HTF S. 12400 (the low is 12385) has only been tested once so it remains strong for now and I would expect it to be defended on any test today. A clean break and pa pushing lower would be very bearish.
Bearish Scenarios
All bearish scenarios for now (today) depend on 12400 and whether we can regain 600 and hold above. The overall picture is clearly negative with LH´s and LL´s on H1 but the 400 level is a critical level. Breaking under opens up a fresh area as stated. My inclination for today is that we wont break under 400 ( a false break or a marginal lower low would be a good opportunity to buy) at least not until we get the US response from the FOMC close reaction later this afternoon. In which case I will be looking for an initial move up from the RTH open to test higher prices and look for opportunities to short from higher. 12600 and 700 R1 and R2 are key levels as noted.
The US
NB. the circles are the last 3 FOMC events to show what happened in the aftermath.
The S&P broke its multi day low of 3830 mentioned yesterday and tested down to 3750 overnight. Given Powell's comments and the late day reaction after an initial bounce on the release and through the press conference it needs to break back up and over the 3830 level for the bulls to regain any sort of control and for any chance of a move up. Further downward pressure calls up 3720 and lower S levels as noted on the chart down to the yearly lows at 3640 - 60. Eyes on the US open!
Summary
With the FOMC in the rear view mirror we now have a clear macro picture leading into year end - no let up on restrictive hikes in the US and likely meaningful hikes by the ECB given the inflation outlook and that they will want to get in front of the curve as best they can.
As an aside Lagarde and her team have an unenviable task ahead. War, energy, looming recession and a highly fragmented Eurozone economy is a much more difficult proposition that Powell faces in the US. Highly restrictive policy rate rises are not equally felt across all member countries and controlling their impact is a real problem for the ECB. Nevertheless they must and in my view will hike boldly as they have no choice and will have to manage the fallout across member states as best they can.
For today as mentioned we have nothing but a bearish picture in front of us. However as a day trader I expect at least some retracement of the after hours bear leg into the US close last night so will be looking at long opps from the open. If we don't get any and head lower I will look to fade any retest of 12400 in the first instance. A break and hold over 12600 is important for today as will be the response in the US.
So my plan is basically to look at retracement / inventory longs initially from the open up to R1 and R2 , consider shorts as we go given the pa and our bearish lean and watch the US closely after it opens to see what we might get in the pm session. That's the plan, lets see what happens and as ever I will be open minded either way and dependent on unfolding price action! I don't mind being wrong - being profitable is all that matters.
RTH Post Session Review
As we expected and planned for the first trade of the RTH session was long aiming to retrace the big drop in the previous after hours session. I was long from the slight retest from above of the pre mkt high. If you were more aggressive you could have also been long from the open level. As said in the kick off notes above, we had 2 targets R1 and R2 at 600 - 620 and 684 - 705 respectively. There were @ 100 pts plus on this trade depending on entry and exits and whether you scaled out. After moving up further we had a good opportunity to attempt what was next in our plan i.e. to look for shorts to get on board the bear trend after an inventory / after hours news correction. This came right at pcc - a regular trade set up and always worth trading. If you were so minded you could have taken a zone to zone trade once we tested back down to R1 and then taken another short at a spike over R2 just prior to the US open. The final trade was another short from R1 once we saw that the US was trading lower straight out of the gate at the US open.
A good day in total. We had a plan, we traded it and it played out just about to perfection. I took the first long and then scalped as per. Trust you all had a good one :)
We´ll do it all again tomorrow - same time same place:).
