Chart Of The Day: S&P 500 Headed Lower As Traders Turn Pessimistic
Investing.com | Dec 17, 2018 10:01
The S&P 500 closed Friday at its lowest level since March 2. Investors were more focused on sharply weakening data from China than on the Asian nation's gestures to resolve the trade dispute.
It's not a good sign for US markets if China's economic situation weighs more heavily on investors of the US index, than strong data from the world's largest economy. Retail Sales, which are responsible for two-thirds of the country's GDP, grew more rapidly than expected, supported by consumer confidence and compounded by low unemployment and rising wages.
Experienced market players know that it's terrible news when good metrics don't spur. Contrast this bearish reluctance with the prevailing attitude just a few months ago, when optimistic investors disregarded any negative developments.
At the close of last week's trade, the S&P 500 finished at its lowest level since the early part of 2018. In doing so, it broke to the downside of its price congestion, as supply overwhelmed demand within the consolidation. Now, if sellers wish to find new buyers, they need to keep lowering their offers.
The 200 DMA crossed below the 50 DMA, triggering a Death Cross, demonstrating recent price weakness. And the MACD provided a sell signal when the shorter MA crossed below the longer MA.
However, beware of a bear trap. The breakout was less than 2%, which could mean a pullback is likely, something that often follows a breakout, retesting the trend.
h3 Trading Strategies – Short Position Setup/h3Conservative traders would wait for the downside breakout to reach at least 3%, in order to eliminate a bear trap, followed by the likely return move and finally, for a confirmation that bears overwhelmed bulls out of the consolidation when at least one long, red candle follows a green or small candle of any color.
Trade Sample:
- Entry: 2,590.00
- Stop-loss: 2,600.00 – closest, higher round number
- Risk: 10 points
- Target: 2,530, the February low
- Risk: 60 points
- Risk-Reward Ratio: 1:3
Moderate traders are likely to wait for a minimum 2 percent penetration of the consolidation, followed by a return move to reduce exposure (by entering close to the resistance and the stop-loss above it), but not necessarily for confirmation of the consolidation’s integrity.
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Trade Sample:
- Entry: 2,660, after the index first falling 2% to 2,590
- Stop-loss: 2,680
- Risk: 20 points
- Target: 2,600, above hammer
- Reward: 60 points
- Risk-Reward Ratio: 1:3
Aggressive traders may choose to short now.
Trade Sample:
- Entry: 2,600
- Stop-loss: 2,620
- Risk: 20 points
- Target: 2,540, above February low
- Reward: 60 points
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