As we are still in lockdown, albeit the last throes hopefully, I thought I´d write up my view of the market as we kick off the new week Maybe next weekend I´ll have something else to do :).
As a day trader / scalper the lower time frame price action is my primary focus but its important for colour and context to have a bigger picture view to act as a possible guide to my thinking as each day unfolds. It´s not really a bias (that sounds too blinkered to me) its more of a feel for who looks to be in charge and the context we are trading at any one point. Given this information I am in a better position to make some scenario analyses dependent on what I see on the lower time frames as price evolves.
Clearly its pretty obvious right now that the bulls have a decisive edge and with the shape of the Dax chart and its relative position versus the US indices we don´t need much analysis to tell us that we are looking to be long till we are wrong as the saying goes. Until something changes structurally I am happy to be guided by looking for long entries versus shorts. Thats not to say I won´t short if the opportunity arises, just that there´s no point fighting the trend - I don´t have the mindset for picking tops or bottoms, I prefer to go with the flow.
While this seems an obvious read I noted that Dax sentiment was at around 75% bearish for most of last week. Seems like many traders can´t quite bring themselves to believe that markets are buying risk like there´s no tomorrow when they consider where the world stands right now and the uncertain economic outlook post covid. I get it, just seems to go against the grain and calls up some cognitive dissonance, but that´s not how we should trade.
Perma bears have been with us forever (and in my experience nearly always out of pocket), but right now our job is to respond to what we see on the charts. Why try to second guess market genrated information - its far and away the best info we have. Incidentally, and the last point on this I´ll make, I saw quite a few comments on Friday about how and why the NFP data was wrong. It´s like some people just can´t stand getting a clear signal to make some money! I don´t know if NFP is right or wrong and I don´t care - the market was happy with it.
Ok with that in mind lets have a look at the Dax charts.
The top chart is the futures and the one below the cash chart. We can see that on the futures chart the rally has pushed up through the 200 DMA and nearly tagged the 880/90 level I mentioned on twitter last week. In my eyes any retrace would likely make a stand at the 12300 ish level first and if it pushes down further the 200 DMA will come back into play around 12100.
To the upside if we continue to follow the likely direction of travel, we have the high from last week at 860, the 890 / 900 (minor R now) and then the 13k big figure. Past that we are pretty clear of any wood to chop till we get back up to 13500 and the bottom of the future gap.
However, if we look at the cash chart we can see that the bottom of the next cash gap is around the 13225 level with the gap top (close) at around 13600. The other thing of note on the cash is the number of gaps below. The theory that the markets don´t like gaps is a good one but it could easily keep going and it might be quite some time before we get any gap close action down below.
So, next week, barring any thing to the contrary that gives me new information, I´ll be looking for long opportunities in the first instance up to the levels I mention where we might get a pause of sorts.
The important thing for me though, as ever, is the pa on the m5 and m1 charts between the obvious levels from the HTF charts. There will be plenty of intraday opportunities I have no doubt both long and short, and I´ll play them as per my normal MO. But I will have the bigger picture in mind at all times.
Have a good week. And btw if you have any questions or comments please feel free to fire away.