Trade view / 05 August 2013 at 6:45 GMT

Sell Dutch AEX at important resistance level

Price target:
Market price:

Trade idea background
The Dutch AEX (AEX.I) has now managed to reach and challenge the former bull market high from February 2011, a level that was tested in May this year and has been rejected in force on both occasions. This time the market is experiencing weakness at this level once again as prices reversed on Friday oflast week.

Looking at the daily chart, we can see a negative divergence on the relative strength indicator (RSI) between the peak on July 24 and the peak from Thursday/Friday last week. This is an indication of weakness and a warning of at least a temporary retreat for this index.

Another short-term negative for this index is the Elliott wave count which looks complete as we can count five waves from the June 24 low into last week’s high. This feature indicates that the bull run off the June low is complete and that we should see at least a correction of this move.

Initially the trade target is set using the Fibonacci retracement tool.

Trade management and risk description
Once the trade is entered and prices move according to plan, move the stop lower to lock in profits and reduce the risk of losing from this trade.

The risk to this setup is obviously that this is a trade against the prevailing trend which is up. It's earnings season and surprise earnings releases can move markets in any direction.

Trade idea parameters

Entry: At market

Stop: 376

Target: 358

Time horizon: one to three weaks

Chart: Daily overview

AEX.I Daily overview

Source: Saxo Bank

Chart: Daily chart with Fibonacci retracement levels

AEX.I Daily with trade target

Source: Saxo Bank

Chart: Daily long-term chart

AEX.I Daily long term chart

 

Source: Saxo Bank

Disclaimer:
Non-independent investment research
This investment research has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. » Read more

5y
marco jansen marco jansen
Johan, question about ur idea to short the AEX index, isn,t it a bit tricky to short an index where index members ING , AGN and RD are almost 50 % of the weighing, for instance todat the move up in ING is good for almost 3 indexpoints where al the other members are lagging, so without the move in ING the AEX would be around 367 ....
5y
Johan Berntorp Johan Berntorp
Yes, it could be tricky since individual stock news could affect more than on other indices. On the other hand it goes both ways and the index as such is behaving nicely over time in my opinion. I usually take positions in a number of indices which I hope will be apparent as sell oppertunities arise one after the other.
5y
marco jansen marco jansen
ok makes sense , thx for ur answer

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