There are currently a whole range of attractive buying options on the market, but technical signals indicate that futures may be ripe for a deeper withdrawal.
U.S. Pat. Futures have suffered losses and Asian equities are at their lows, but it would be a mistake to think that the worst is over. The death toll of the corona virus has reached 360 people and is rising without any signs of delay.
fell by 9% earlier today, while the demand for oil in China fell by as much as 20%.
However, after a 3% drop, traders offered contracts on the S&P 500 index of 0.7%. Could this suggest that the market is turning? Although it is of course possible, we do not think that this is what happens. The graph offers a bit more clarity.
Daily graph US500 Futures
The first sign of trouble was when the contract slipped below the upward line since the low of 3 October. Subsequently, the S&P futures attempted to climb back above the broken up line, consolidating in the form of a rising flag – a bearish formation after the 3% drop. The reason that a downward breakthrough is expected is that the upward tight price movement is seen as profitable for short sellers, attracting new bulls to resume the short.
The outbreak of the disadvantage was complete, albeit with a penetration of less than 0.7%, making a bear fall possible. The fact that the bearish flag developed on top of the broken uptrend line since October 3, however, guarantees its tenacity. The 50 DMA that supports the flag also underlines its significance as a technical pressure point on the map.
Both MACD and RSI agree in their downward projection.
So what's the target? Although any previous high and low can serve as support, since traders withhold prices and their aftermath, the implicit goal of a flag is based on the length of the flagpole, in this case the previous sharp movement is 104 points.
This goal is testing the upward line again since the bottom of December 24, 2018, the worst Christmas Eve for known markets. The significance of this upward line is emphasized when the 100 and 200 DMAs support it.
The next crucial intersection for traders is the 3,000 psychological level, an important resistance line since April, which required four rallies to overcome.
Trading strategies – creation of short positions
Conservative traders would consider a short after 3% penetration to filter out a bear trap, bringing the price to 3,145, and then waiting for a return movement to successfully retest the flag.
Moderate traders would be satisfied with a 2% downward outbreak to 3,176 and then wait for a withdrawal for better access to resistance, not necessarily to retest the outbreak.
Aggressive traders can now go short, provided they accept the risk of a bear trap and write a trade plan accordingly.
Trade sample
Listing: 3,240
Stop loss: 3,250
Risk: 10 points
Target: 3,210
Reward: 30 points
Risk: reward ratio: 1: 3
