About that FCPO divergence
Last night, price didn’t manage to retest any of the area of interest I’ve mentioned for sellers. Instead, sellers faded HTF trendline and continue shorting the market. As market moves impulsively, the usual fade & reclaim behavior I’m waiting for doesn’t happen due to aggresive market participants. I’ve since backtested and collected statistics on fading trendline for both parabolic market movement & normal market condition. The results has shown that it works in both market conditions but I will only share areas of interest for intraday high, low, support & resistance. This is because fading trendline requires a different type of entry confirmation as there isn’t a local high/low to fade & reclaim.
Also, in yesterday’s note, I’ve also highlighted that if divergence formed, there would be a local low which would be of interest for buyers. Divergence was confirmed and a local low (3825) was formed but buyers did not fade & reclaim it. Sellers continue shorting the market until it close at HTF buy range low (3801). The divergence has become a temporary pullback before further trend continuation.
This morning, market gapped down and started pulling back until morning session ended. Also, a new HTF divergence buy has formed (chart below) but more on that later.
In the afternoon, MPOB released supply & demand figure for April which are not too far off from Bloomberg survey’s figure that was released earlier this month:
The afternoon session opened with a gap down as market participants reacted to the bearish MPOB figure (production up, stock up, export down). Personally, I find that reaction a bit of a let down but not really surprising given that market participants has already priced in the fundamental figures both from Bloomberg & Reuters survey and MPOA production figure for April that was released prior to the capitulation. The smarter seller waited for the high of this morning session to be faded & reclaimed it and tried to push price down only to be met with resistance from buyers.
Remember that HTF divergence that was formed this morning? Well, when the market gapped down at the open of the afternoon session and close bullish, the local low (3781) was faded & reclaimed after HTF divergence was confirmed. What ended happening was a condition called VWAP pinch (coined by Brian Shannon in his VWAP book). It’s essentially where buyers & sellers fight for dominance. Not only are there two conflicting technical views but also two conflicting fundamental views. On one camp, FCPO bears shorted because of bearish figures and on the other camp, FCPO bulls longed because the market had already priced in the fundamental figures. Personally, I traded both side, sold July contract and bought August contract. We all know what happened after that, buyers won when the afternoon session ends by a large margin. My hedge paid off.
The market is now back to the environment that I’m accustomed to. For the sell side, sellers’ area of interests would be local highs (3822 & 3839) where that are also nearby SBRs. If this minor uptrend is just a bullish correction, then sellers might defend and short again. On the buy side, the two local lows (3794 & 3785) would be of interest for buyers to defend and continue their buying activities. Currently, market closed at VWAP & upper VWAP band from two different anchor points which means there’s a possibility for market to gapped down on Monday into buyers’ area of interest. Depending on how market develops on Monday, I might be a seller or I might be a buyer. I personally find that selling is risky during this minor uptrend. I would rather wait for the minor uptrend to shift back into downtrend before joining it again.
Fade & reclaim behavior:
