The Index jumped on Friday and closed 1.66% to hit a new record. The move was triggered by two catalysts: US President Joseph Biden on Thursday pledging to double the US vaccination coverage to 200 million within his first 100 days in office, and the Fed lifting bank share buybacks and dividend restrictions.
The actions of the government clearly show that they are committed to getting rid of the pandemic as soon as possible. The Fed's activity indicates unconditional confidence in the country's economic recovery. Both imbued traders with optimism.
However, a new risk weighs on sentiment this morning – the possible repercussions of the liquidation of possibly as much as $ 30 billion in equity positions when an over-indebted family mutual fund in the US was hit by margin calls. Global banks Credit Suisse (NYSE 🙂 and Nomura Holdings (NYSE 🙂 could also suffer serious losses as the fund is a client of each.
Friday's supply / demand balance clearly supported demand, completing a pattern that had been nearly two weeks in the making. This means that as long as today's uncertainty doesn't push the price below the pattern, the odds are good for a continued rally for the broad index.
SPX Daily
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The index caused an upward breach of a falling flag. The supposed dynamism of such a range is the space in which buyers who have made up to 7% profit in just 8 sessions pay out, thus & # 39; falling & # 39; the flag. The overloaded nature of the range shows that demand is slowly absorbing the sudden supply surplus. At the same time, the upward breakout signals that all available supply has been fully absorbed and this renewed demand craves more, even at higher prices.
The rise is expected to trigger a range of market mechanisms, including a possible combination of a short squeeze and triggered longs, followed by speculators joining the movement. When the short squeeze is over, we can expect a potential downturn, reassessing continued investor interest.
If the question is correct, the SPX must repeat the move that preceded the flag.
Note: We are dealing with probabilities, not prophecies. The slow general advance since November 30 could possibly top. Therefore, follow the directions we found, but don't take anything for granted. close above the psychologically significant 4,000 benchmark, followed by a dip confirming support.
Moderate traders would buy the dip.
Aggressive traders can go long at will, as long as they accept the higher risk associated with beating the market, which can wait for further confirmation or even identification. Money management is crucial.
Here's an example:
Trade Sample
Entry: 3950
Stop-loss: 3,900
Risk: 50 points
Target: 4,150
Reward: 200 points
Risk: reward ratio 1: 4
Author's Note: This is an example only. Even if our analysis is correct, the market can change. And even if the market continues, the sample can still fail. Finally, even if the sample stands, it can let you down personally. Your timing, budget and temperament will have a significant impact on your trading success. Until you learn how to adjust a plan, you take small risks to learn and gain experience, not to make a quick profit or else you will soon be out of the game and blame everyone but yourself.
