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The charts, graphs and comments in my Trading Blog represent my technical analysis and observations of a variety of world markets...
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*** Click here for link to Economic Calendars for all upcoming events

Wednesday, November 30, 2011

The "50% Fibonacci Sweet Spot"

Below are 4-Hour charts of the YM, ES, NQ & TF. I've drawn 4 sets of Fibonacci fan lines and 2 sets of Fibonacci retracements...I've marked the "Thin Ice Zone" that I spoke about in Monday's post...and I've placed a golden circle where all of the 50% Fibonacci levels (heavy broken blue lines) criss-cross, which I've dubbed the "50% Fibonacci Sweet Spot." This "Sweet Spot" is the level where I believe these markets will need to hold above on any pullback if I am going to be convinced that the rally this week is sustainable in order that we see them reverse the bearish moving average Death Cross formation that they're currently operating under on this timeframe, and on the Daily timeframe.

There is one exception, however...while the TF has advanced above a lesser (grey) "Sweet Spot," it is still below its "50% Fibonacci Sweet Spot"...it's also the only e-mini that hasn't advanced above its "Thin Ice Zone"...therefore, all of my comments above and below hinge on the TF advancing and remaining above its "50% Sweet Spot."

I say this, in spite of the this morning's report regarding the major central world banks shoring up financial liquidity (see my earlier post today for the news article link), and in spite of China's central bank cutting reserve requirements for commercial lenders by 50 basis points, as reported in this news article: http://www.reuters.com/article/2011/11/30/us-china-economy-rrr-idUSTRE7AT0TK20111130 (presumably in anticipation of 2 reports which were released later tonight which showed of a drop below 50.0 of their index based on purchasing managers in the manufacturing industry):  http://www.forexfactory.com/#details_closed=35066 A drop below 50.0 indicates a contraction in their manufacturing industry.

My reason for saying this is because Europe's financial, economic and fiscal problems are still unresolved. Furthermore, I see fiscal stalemates in the U.S. until next year's election is out of the way. However, it would appear that there may be more room for advancement in the U.S. equities and commodities markets given the data released in today's Beige Book report, as well as potential further demand by China for commodities. Therefore, I'm allowing a 50% weighting in favour of an advancement above the "Sweet Spot" until Xmas (also, the Fed should have an idea of where inflation is heading by then and whether it is still within their target rate)...this is, of course, barring any major catastrophe that may arise between now and then, which sends these markets plunging, once again.

However, should the markets fail to remain above the "Sweet Spot," and should the TF fail to rally and hold above its "Sweet Spot," I would seriously question the validity of this week's rally...they would still be subject to the volatile bearish Death Cross influences, and they could very well end up below October's lows. I'm applying a 25% weighting to the chances of a reversal to new lows for 2011, and a 25% weighting to the chances that the markets continue to trade within their large trading range that was established from August.

I'll review these weightings weekly until the end of this year.