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Shorting - index levels to watch

With Germany 30 and Nikkei 250 ranging low last week, we look at key levels to watch for short-focused traders.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
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Source: Bloomberg

Typically, downside volatility is ‘triggered’ causing an abrupt change in how the asset is priced leading to an aggressive price decline. The price traveled in terms of time is much more aggressive and winning trades, if they are had at all, are often opened and closed in a much shorter period-of-time than a successful long trade.

Market: Germany 30

A key technical breakdown on the Germany 30 came when the price broke below the 2018 opening range low at 12,740. This is known as an opening range reversal, and such a development can be indicative of a wash out of institutions who establish positions early in the year closing out their long trades and flipping to a short campaign. As such, the bias will remain for further losses while the market trades below 12,740.

Currently, the price of the Germany 30 is being supported by the 38.2% Fibonacci Retracement of the 2016-2018 price range of 8,696-13,608 at 11,731. A breakdown below 11,731 would give rise to an opportunity to target a drop to the 50% retracement of the same range mentioned earlier at 11,152. The price rebound has been strong on the Germany 30 after the February 6 low. Traders should look for price to hold below the 38.2%-50% retracement on the rebound at 12,425-12,653 for bearish pressure to remain. A break and daily close above this zone would hurt the bearish technical case and would favor setting an entry order if price violently drops again as it did in early February for the short trader to ride lower with risk management applied.

(Source: IG Charts, created by Tyler Yell, CMT)

Market: Nikkei – Japan 225

The Japanese Index rallied 26.94% from September 2017 after PM Shinzo Abe’ election victory and continuation of his historic monetary easing program called ‘Abenomics,’ would likely continue unabated. Like most other asset classes in late January and the first week of February, the Nikkei gave up most of its gains, and indeed fell by 61.8% of the 26.94% rally in a matter of weeks to the 200-DMA, and currently looks to be supported near 21,000.

Traders looking for further downside should be encouraged further by the Japanese Yen strengthening by the most since November 2016 against the US Dollar, which puts considerable weight on Japanese exporters. The combination of soured risk sentiment and a stronger JPY could lead to a further decline to 20,146-19,232. Short-focused traders should not hold a short-trade below 20,718, the February 12 high as an aggressive rebound could be quick and drop the short traders equity in a hurry.

(Source: IG Charts, created by Tyler Yell, CMT)

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.