This week, I took a trade on the SPX500 that ended up being a successful one by the time it closed. We caught a 29 point move when it was all said and done, and here is the breakdown behind it.
On May 23, I sent out an alert to the community that I had entered a long trade on the SPX500 at $3959.42 and set a suggested stop loss 152 pips below entry at $3807.29. My analysis behind the trade stemmed from speculation on the FOMC meeting that Wednesday. There were several concerns regarding the current rate of inflation and interest rates along with the Fed's policy going forward.
The main catalyst for taking this trade, however, was due to price action from technical indicators. I saw a nice rejection from the lows and a break to higher highs. My initial goal was to wait for a 100 pip move before I considered taking profit. The RR was not 1:1 as I wanted to give room for the trade to run in a volatile market. I chose to take a .01 size lot to limit the damage of a violent swing to the downside which has been prevalent so far in 2022. I also wanted to have lots of capital to work with in case such a swing occurred again.
During the trade, my position continued to sink lower and lower until I was about 70 pips underwater. Things weren't looking great although I kept in mind that harsh moves were going to be a part of the trade and I would need to keep it open while the market decides where to go.
On the day of the FOMC, we saw the hardest moves in either direction, especially at the open of the New York session. Throughout the day, however, price began to shift back up and brought me back to break even.
Finally, fears subsided on nearly as-expected news from the Fed came out and my trade started to move in profit. I sat in the trade for almost the rest of the trading day.
Instead of waiting for the target price, I manually exited the trade after a 29 pip move above my entry. The reason I closed was due to past patterns of quick moves to the upside after a Fed meeting followed by a sell off in the next days. I was happy with the profit, but had I stayed in, profits could have mounted to a 104 pip move (right where I had initially placed my TP). It was difficult to stay in for me after seeing gains fade from false rallies this year, but overall, a profit is profit.
A big warning sign is occupying the minds of investors as a new wave of the virus in China emerges. City-wide testing in Shanghai and Beijing have been going on for the past couple days. Investors fear another potential lockdown in these cities. This is not just impacting the Chinese economy but global indices as well.
SPX500, NAS100, UK100, and NI225 are all down today while NAS leads in the losses and is down 2.68% at the time of writing this. If China were to announce another lockdown, stock markets around the world would continue to tumble. Another problem facing US stocks is a mixed earnings season. This factor paired with a shift in money to bonds adds to the overall bearishness.
Very little open interest on the COT side also suggests that we are not yet ready to see stock market gains for the time being. What's happening now is a myriad of headwinds in the way, and the market can't really cope with everything going on. An alarming rise in uncertainty usually results in sporadic behavior and eventual sell-offs. It looks like the bearish sentiment will likely continue until we get past quarterly earnings and concerns in China ease.
SPX500 fails to shift in direction after yesterday's bullish hammer candle. It looks like price will eventually fall to support around $4181 where there is a double bottom on the 1D. However, if by the end of the day the index shows another day of rejecting the lows, we might see a higher low established.
NAS100 is in the same boat except yesterday's gains were erased just from this morning's performance. What we could see is a rebound at the double bottom as rejection from the lows would be bullish on a technical perspective. However, if price cannot maintain above this level, we could see a fall to the $12,600s.
This is very much looking like a short setup on the 1D. Price has already crossed under the 50 DMA and heading lower towards the 200 DMA. Price action suggests that the index will hit the 200 before it finds any clear support. Lower highs also suggest that price is not done with its bearish move.
Global stock market investors may have gotten way ahead of themselves after the recent moves that were made by major countries' monetary policies. Right now, markets around the world are broadly down after several days of gains.
10-year US treasuries have reach a new high for the first time in three years at 2.4%, and the yield is currently sitting at 2.33%. This is likely due to the Federal Reserve's tighter monetary policy after a 25 bp hike in interest rates. Powell's remarks regarding inflation suggests that we will expect a more hawkish Fed which could lead to higher USD/bonds, lower stock market prices. And this is true for other countries like England, New Zealand and the Euro-area eventually.
SPX500 is down nearly 1% on the day after concerns resurface about the Fed's hawkish stance towards the dollar. This could just be a natural pullback in the market rally where the index could find support around $4421. So, price could fall another 1% from the current price if it can't catch a rebound before then.
UK stocks are coming off the highs as well for some kind of retracement. Below, the index can find support around the 200 DMA as well as the the 50% and 61.8% fib levels. That would be a 5% and 6.25% drop respectively from the current price.
German stocks actually look the weakest here on the 1D timeframe after a rally from the lows in the 12,400s. Price is nearing resistance in the 14,800s which is also coupled with the 50 DMA and 61.8% fib level retracement. It is a much less liquid market so spreads are not as tight, and big moves could show up as gaps on the chart.
Overall, investors need to watch their leverage and risk as always, because this is when that method comes in handy.
A big red flag has entered the US stock market after giving back some of yesterday's gains. Indices are broadly down as the SPX500 is down over 1%. Something happened in the stock market that could lead the benchmarks to new lows.
The #1 concern for the SPX500 (US500) is the death cross formation that happened in the last trading session. The blue line is the 50-day moving average and the red line is the 200-day moving average. When the 50 crosses below the the 200, it suggests that a trend reversal is about to take place.
Additionally, the US saw an unexpected rise in jobless claims this week after two weeks of beating forecasts. The report missed by 11,000 claims which is likely one of the catalysts for today's drop. On top of record-high inflation from decades ago and failed ceasefire talks, indices look like they are in bad shape right now.
Recent behavior suggests an eventual move to a level under the $4000s. However, there is also a chance that price could come up to test the top of the trend line before then. Regardless, it looks like the market is looking for a bottom, but has yet to hit clean support which would be around the $3980-90s.
A zoomed out look on the 1D gives us a better idea of where we could find the SPX end up going if the sell off continues. On the other hand, commodities seem to be cooling off for the time being, and this has been good for equities traders.
Overall, indices look like they will end up moving to the downside, but there is a lot of noise in the way. Although the week could end with higher stock prices, there are more than enough reasons for SPX to hit lower lows.
Stocks sink on a global scale as the dollar strengthens due to conflicts on the Russian-Ukrainian border. Trae sanctions on Russia by the NATO allies is hurting economies around the world as another factor serves as a big red flag for indices.
Most indices are starting to show a more concrete direction to the downside as lower levels form and bounces from support are subtle. What we thought could have been a pullback initially is starting to form more of a trend on the S&P as well as in Britain, Germany and Japan.
Along with the sanctions in place, the US is having talks about cutting off Russian oil altogether to punish them for invading Ukraine. However, this move will have serious consequences on the stock market in the US because most of the oil production is outsourced from Russia and Iran. This has caused a choppier stock market as consumers will have to start spending more per gallon at the gas pump. And that triggers a domino effect of higher inflation of which is already at a 40-year high.
SPX takes another test around $4270s which suggests a potential break in support is more likely to happen. The big warning signal for indices is the recent break below support. A close below this level would probably take price to a lower low underneath the $4105 level. The 50 DMA's stark decline is quickly approaching the 200 and gearing for a potential death cross pattern on the 1D timeframe.
The British stock market is registering similar behavior as the index touched under a triple bottom before rebounding some losses on the day. The market's recent dip under the 200 DMA last Friday is a big technical red flag for England's investors who are now 12% off the highs. The harsh sell off on the 1D timeframe is not even reflected by the 50 or 200 DMAs yet over 7% lower from March 3rd levels.
The German market is the only index that turned positive today, up a little over 3% but still 23% from the highs. The index's break under the supportive trend line almost put stocks in a free fall for the past couple weeks. A death cross pattern did form which is Germany's big red flag going forward.
Japanese stocks dropped to a falling trend line after making a lower low on the day. A death cross pattern on this chart is also acting as a bearish signal for the stock market in Japan. Risk-off behavior is not just in America, but all over the world at this point. Support lies around 24,160s which were the highs of February 2020.
The price of gold and oil rise as USOil surges above $100 as the Russian-Ukrainian conflict intensify. This marks the highest price has been for 7 years.
The US is set to release 30 million barrels from global oil reserves. Global supply as a whole will decrease by 60 million. Major banks in the US are now predicting a price target of $125 per barrel in the second quarter.
Above is an image of Crude, Brent and natural gas P&L over days, months and years. With new price predictions of longer term growth, we can now expect that gold will likely benefit while equities will likely suffer.
With this in mind, let's watch these pairs now to catch potential trade setups before they take off.
Gold is definitely more bullish after hearing news of harsh sanctions on Russia and their oil supply. Price is coming back up to test the highs near $2000 on the 1D timeframe. The metal also broke above a double top around the $1950-60s but couldn't close above. So, today's movement looks like it wants to test that level for another attempt above that double top.
SPX500 came up to hit a falling trend line on the 1D chart after a bullish couple days. Now it looks like price is coming back down with weak momentum overall. Lower lows and highs suggest we could see SPX hit a price under the $4000s level.
Major USD pairs opened lower before immediately pairing losses from the lows today. Europe placed harsh restrictions on trade with Russia, and it is clearly affecting the global market. We are taking a look at a couple pairs' strange activity after sanctions and potential trade setups that go with them.
Sanctions by European governments have caused the ruble (Russian currency) to plunge amidst these restrictions placed on them. As a result, US stocks have risen, UK stocks have fallen, German stocks are up, USD is mostly down, and risk-on has returned for the most part.
Bond yields in the US are off the highs today as well suggesting that risk appetite is back. There is still uncertainty everywhere which makes risky plays questionable. However, if you were to be in the stock market or short USD today, you would have positive equity.
This pair gapped lower before immediately shooting higher back above support on the 1D. Major currencies are starting to look stronger than the USD right now which is concerning given the current circumstances.
The kiwi jumped today after falling to support on the 1D. A weaker dollar today brought back a lot of risk-on sentiment in the forex market. The pair might come up to test the resistance level around 0.68637.
The euro is doing the same thing on the same timeframe as it made a lower low gapping downward before buyers stepped back in. This is causing some bullishness for the time being, but this behavior is also concerning.
These jumps in price could be a trap for the retail investor as there is still weak momentum overall after risk-on behavior returned. I would wait to see what happens this week before making any big bets against the USD or going long on the stock market.
US and UK indices are back on the rise again after a stark decline from the highs on inflation, interest rate and Russian-Ukraine concerns. After the news of the invasion, equities went from heavy bearish sentiment to bull mode. Is this recent move an indicator that indices are a buy again, or is this a trap for more downside?
Stocks rise on an increase in personal spending in the US, and after the news of the Russian invasion of Ukraine. It seemed that investors might have been treating this as a sell-the-rumor-buy-the-news event as if the invasion was already priced into the market.
A quick momentum shift in the market caused a crazy surge in demand for tech stocks which have been selling off heavily until recently. Big name tech stocks like Square (SQ), AMZN, GOOG, etc. are beating earnings and showing strong growth.
As we approach the end of this month, we have to start looking towards the Fed meeting in early March. It is very likely that we will see a 25bp hike at the least, and interest rates may continue to rise throughout the year. Inflation is also a serious concern for the stock market and USD as we hit highest CPI levels since the 1980s.
SPX500 found support on what seemed to be a sell-the-rumor-buy-the-news behavior by investors on the Russian invasion of Ukraine. One thing to look out for is this falling trend line where there could be potential resistance. Lower lows and highs suggests that momentum is still bearish for the time being.
UK100 looks in better shape than the SPX as the index makes higher highs and lows on the 1D. The market bounced right off the 200 DMA for the third time since September 2021 suggesting that this level is a reliable zone of support.
Many, including president Biden, expect Russia to invade Ukraine within the next couple days. More troops have garrisoned the borders between the two conflicting countries, and uncertainty dominates political and economic sentiment. The SPX500 is down 1.25% today at the time of writing this. With a short-leaning bias on equities, here is how to trade SPX during this international conflict.
The market is clearly not in a great spot, and trading against the headwinds is not ideal right now. This conflict seems like it will be resolved relatively soon, and by resolved, I mean that Russia will either invade Ukraine or step down and return home. In the meantime, we have major political figures heavily anticipating an attack by Russian forces. So, things aren't looking up right now. This means that there is no reason to try to find bullishness in the market until this situation has ended.
COT is also not telling us enough for a shift in sentiment as both long and short contracts are decreasing overall within the past week. On the other hand, retail sentiment is heavy bullish on tech stocks, which could help indices like NAS100.
Although I might sound very negative towards stocks, I also don't want to force any long trades if the setups/sentiment is not there. In my opinion, this is either a time to be patient and wait for resolution or look for short term sells.
SPX500 is struggling with that falling trend line on the 1D timeframe as it pulls back to lower levels on the day. That resistance level is also coupled with the 200 DMA which will be a tough level to break under these kinds of circumstances. Further support lies below in the $4250s.
The NASDAQ is in the middle of a wedge pattern on the 1D. Selling pressure has continued this morning which could take price down towards the rising trend line. We are currently looking at the lowest levels since June of 2021 and 14-Day RSI reading of 40 after coming up from 22, suggesting that the index is no longer oversold.
Several days ago, global markets fell into frenzy on the Russia-Ukraine conflict going on. The Russian military sent troops the the border between the two countries, although recent reports claim that some of the troops have been sent back to base. There are still no clear signs that de-escalation has occurred on the borders, but diplomatic engagement still seems on the table for Russia although it is hard to tell. The outcome of this occurrence is completely uncertain, and the relation between Russia and forex is causing some wild behavior.
If one thing is for certain, the growing tensions cause the USD to fly higher on the risk-off sentiment from investors. At the same time, when we heard report of calling troops back, the dollar fell while currencies like GBP, EUR, CAD, AUD and CHF began to rise over the USD. Sadly, escalating conflict leads to a higher dollar and gold price, so if we disregard trading for a minute, we should just hope that the tensions ease even at the cost of a falling USD.
Oil prices rose to the highest level in 8 years to the high $95s yesterday on escalating conflict. Investors fear that if this incident gets worse, oil drilling will cease. This caused a surge in oil price on the anticipation of lower production. USOil dropped 2.89% at the time of writing this after news of some troops returning home.
American, German and British indices rose this morning on the recent news. However, if tensions were to get worse, we could probably see another decline on all sides. Indices are probably not the best thing to trade during this time due to the higher volatility that can come into play in the global equities markets. This is true especially during attempts at negotiations ahead because we can't say who will agree to what and if Russia will accept control over a small part of Ukraine or if there will be a military pullback.
We are still waiting for updates and will be keeping up with further news.