Video

#SaxoStrats
Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Short term
/
Sell
Trade view / 20 January 2017 at 12:59 GMT

SPY ending wedge ominous for bulls

Director / PIA-First Limited
United Kingdom
Instrument: US500.I
Price target: 2,220
Market price: 2,271
Background

Donald Trump will be inaugurated as the 45th US president just after the European close on Friday. The tone of his acceptance speech is likely to be broadly conciliatory in nature with a pledge to heal divisions and work for unity to benefit the whole of the US by boosting economic performance. A relatively conciliatory tone would tend to support risk conditions and underpin US equities in the very short term.

In congressional confirmation hearings, Trump’s Treasury Secretary nominee Mnuchin stated that he backs a strong dollar policy and that Trump had been misunderstood when he called the dollar too strong. He did, however, deviate from prepared text by introducing the strong dollar comments which increased speculation surrounding tensions over currency policy.

He stated that China would be called a currency manipulator if the practice resumed, appearing to contradict Trump’s promise that China would be called a manipulator on day one. The ambiguous comments did little to clarify the Administration’s likely currency and trade policies surrounding China and the global economy. Federal Reserve chair Janet Yellen also made fresh references to unsustainable budget deficits and economic concerns are liable to increase next week with equity-market gains liable to reverse. 

Technical

The weekly chart highlights the ending wedge formation and with the 161.8% Fibonacci extension target sitting at 2,300 we remain cautious on further upside.

Daily charts also highlight some possible reversal patterns forming and this extended rally looks to be nearing its end.

A Diamond top formation would target a reversal to just below 2,220 and this could be the early stages of a head-and-shoulders reversal.

Bearish divergence on the daily chart is also evident and points to a move lower.

Management and risk description

We look to take partial profits in front of the diamond top measured move target (2,217), the previous support level and 50% Fibo retracement (2,180-83) and the cloud bottom and 61.8% Fibo retracement (2,160).

Parameters

Entry: sell US500.i at current prices 2,271. 

Stop: a break above the psychological and 161.8% fib extension level of 2,300.

Targets: 2,220, 2,183, and 2,160.

Time horizon: one to four weeks.

Daily chart showing bearish divergence:
spd1

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Source: Saxo Bank 

Daily chart highlighting diamond top and potential head-and-shoulders formations:
spd
Source: Saxo Bank 
 
Weekly chart indicating ending wedge formation:
spw
Source: Saxo Bank  

— Edited by Michael McKenna

For more on equities click here.

Non-independent investment research disclaimer applies. Read more
A compiled overview of Trade Views provided on TradingFloor.com is found here
3y
Vasiliy1 Vasiliy1
This comment has been redacted
3y
Steve O'Hare - First 4 Trading Steve O'Hare - First 4 Trading
Hi Vasiliy, i am sorry i do not understand your question of "Commission per contract?". Can you explain?
3y
Vasiliy1 Vasiliy1
This comment has been redacted
3y
ValeriyKZ ValeriyKZ
HI Steve ! What are you thinking about DOW Jones (US 30 wall street) ?
3y
Steve O'Hare - First 4 Trading Steve O'Hare - First 4 Trading
Hi Valeriy. Dow has just formed a double top - i will post the analysis soon after our direct clients have received it. Good luck!
3y
ValeriyKZ ValeriyKZ
today?)
3y
Steve O'Hare - First 4 Trading Steve O'Hare - First 4 Trading
Please see image attached
3y
Morris Morris
How hard was it to make a call on US500?
3y
Morris Morris
On the charts it does not look like a clear cut sell though there looks to be slight possibility! Maybe you trade duration will be enough to see the move! Hence not an easy one as my weak view. But still appreciate consistency in application of your approach. Thanks
3y
Morris Morris
welcomed

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