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- Optimism is fueled by signs of recovery in China and falling unemployment in Germany.
- However, new travel restrictions and testing requirements for travelers from China could dampen market sentiment.
- The S&P 500 index is making a point, a continuation of the pattern after the decline, and I predict an additional drop of 300 points from that point.
Financial markets have started the year on a positive note, with stocks and treasuries gaining and rising. Signs of a recovery in China, a slump, and signs that the Federal Reserve is slowing rate hikes have helped boost this optimism. Analysts hope that China’s supply chain issues will continue to ease, which could dampen global inflation and help China’s recovery get back on track.
However, news that the Australian government has ignored the advice of its chief medical officer and introduced new screening requirements for travelers from China, despite no evidence of a new outbreak from the country, could dampen this positive sentiment.
Many countries, including the US, UK and other parts of Europe and Asia, last week imposed restrictions on travelers from China and its territories, requiring pre-departure testing or testing on arrival.
These measures are controversial, with health experts and scientists warning that they are largely ineffective at preventing the spread of Covid or new variants and could exacerbate racism and xenophobia. China has warned that it will take countermeasures against these travel restrictions, saying they have no scientific basis and are “unacceptable”. Currently, there is no evidence of a new variant coming from China, and experts say that even if one emerges, it could spread throughout the world.
I remind you not to “put too much stock” in the daily news reports. It represents the long-term view of the US stock market.
The trend is down. The 50-week MA crossed below the 100 WMA in late October, although the index has been rallying. Here’s how to solve this paradox: the rally was in the short term, while the weekly MAs were in the long term. While some traders were buying the dip, he was temporarily oversold, warning that the rally was short-lived. It’s a call I’ve made over and over again since the S&P 500 took off completely.
In the November post, I discussed the addition, which has since been completed.
Now, the S&P 500 is forming a bullish trend, after five straight red days between Dec. 13 and 7 percent falls, when the index failed to post a Dec. 1 high and a channel top and a Dec. 19 low.
The implication of the pennant double bull is reinforced by confirming the falling channel following the rising cone.
The pennant is a complete downtrend, indicating that the short-term equilibrium—when buyers and sellers trade strongly—is over and the initial drop will resume.
Technicians measure the drop before the pennant region and target another such move to the pattern’s low point. In this case, the action should take another 300 points below the flash point according to the statistics.
Trading strategies – short position positioning
Conservative traders should wait until the price closes below November 3 and a reversal action to confirm the integrity of the system.
Moderate traders wait for the S&P 500 to close below the pennant low, then wait for a rally to close.
Aggressive traders can be short depending on their strategy. Here’s a general example:
Business sample – powerful short position
- Admission: 3,850
- Stop-loss: 3,900
- Risk: 50 points
- Target: 3,550
- Reward: 300 points
- Risk-reward ratio: 1:6
Disclosure: The author does not own any of the securities mentioned in this article.
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