Trade view /
27 May 2016 at 8:06 GMT
The bull run off the February 11 lows has been exceptionally strong, especially for a move that has the appearance of an Elliot wave three wave sequence. At the lows back in February bearish emotions were running high and at current levels bulls are now, if not the loudest, having a better feel about things as we are back at the highs.
The SP500.I (US500.I) peaked on May 20 last year and has since that time made lower lows and lower highs indicating weakness, the question is how weak! The punt from the December highs last year into those February lows was a five-wave move and the current bounce appears to have been in three. This type of structure isn't likely to be followed by massive upside into new all time highs, at least not before a larger pullback.
From a time cycle perspective there is an interesting alignment showing measuring the move from the May 20 highs last year into the February lows this year, it took 267 calendar days ending only two days off a perfect hit. The rise from this low into the April 20 peak took 69 days ending on EC on the Gann wheel this giving us a possible 360 degree alignment, meaning odds of a trend reversal are descent.
Resistance is found at 2,110 then 2,117 and 2,135. Support is found at 2,044 and 1,955 and 1,864.
Risk/reward appears very attractive for shorting this index, either for longer-term bearish position or a shorter-term play for a movement into and towards the May 6 and May 18 lows. In this trade view we are looking at the shorter term for starters. If it works out short term, well then we have something to build on for later.
Management and risk description
The plan is to short the SP500.I (US500.I) at market around 2,090 for a short-term move lower into and towards the 2,044 level, the stop could initially be placed at 2,110. Ideally price will be contained below 2,094, above this level risks of a break above 2,110 are substantially increased.
There is GDP data out of the US today as well as a speech by the Fed's Janet Yellen, one might wan't to await this before engagement.
US cash markets are closed Monday.
Entry: Sell at market but below 2,094
Time horizon: Ideally one week but up to two weeks
SP500.I daily chart
Source: Saxo Bank. Create your own charts with SaxoTrader click here to learn more
SP500.I hourly chart
SP500.I daily development chart
Source: Saxo Bank
— Edited by Clare MacCarthy
Non-independent investment research disclaimer applies. Read more