2.14% rose yesterday, after a moderate Fed had suggested that the interest rate cut was possible and a hopeful Mexico suggested avoiding rates. However, in a tweet, President Donald Trump raised the headwind of tariff relief in Mexico by making it clear that he means business. Speculation of an upcoming interest rate cut remains.
It is funny how short the memories of investors are. Last Friday alone, the outlook for falling prices predicted a slowing economy, making the worst month of the year for equities and the largest weekly decline in treasury interest since 2014.
The same outlook that caused last week's losses to double on Friday is suddenly the same reason that yesterday propelled the second largest comeback of the year since January 4.
From a technical perspective, the jump of the SPX is considered a correction within a down trend after the benchmark has completed an H&S summit. While the index actually moved back above 200 DMA, it closed below the H&S neckline. The S&P should close far above the neck, preferably above its right shoulder, to blow it out.
Although the market has the right to change its mind, even in the medium term, as this pattern implies, there is a good chance that the current peak is short-lived rather than a structural shift. The 2% neck penetration from Monday met a moderate 2% price filter to prevent a bear trap, but not the minimum 3% filter for conservative traders.
The price has so far been kept under five sessions, including one weekend, which satisfies even a conservative time filter
From a risk / return ratio perspective, the current price is an ideal shortening opportunity.
Trading Strategies
Conserving traders would wait for the minimum 3% outbreak from the neck to 2,700, followed by a return movement to verify that traders went to bears when at least one long, red candle floods a green or small candle after reach the neckline.
Moderate traders can have more comfortable shorting with a value lower than the 200 DMA.
Aggressive traders may have a shortage after aggressive filters are well established.
Trade sample
Listing: 2,800
Stop loss: 2,810
Risk: 10 points
Target: 2,730 – above Monday's lows
Reward: 70 points
Risk-Reward Ratio: 1: 7
