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US 500 potential trade idea

The FOMC minutes have been taken positively for stocks, revealing a cautious tone. 

US
Source: Bloomberg

The key concerns were weaker global growth, a poor recovery in residential construction and issues with domestic productivity growth.

There was commentary around the USD and naturally we saw traders react to this; but the fact the market felt the minutes suggested that the bank will keep rates lower for longer was a huge positive for equities.

My thought process has been more bearish of late, although my overall stance was neutral. However, from time to time I think it’s a good idea to take a step back and look at the S&P 500 (the world’s institutional benchmark) and the surprising current set-up.

On the daily chart we can see a beautiful channel, with the stochastic oscillator starting to move higher off the 20 level. We stand ready to see the MACD cross above the signal line and will naturally be more enthused when we see a move above the zero line. The longer-term 200-day moving average (red) is still moving higher, although the 55-day moving average is looking a bit more shaky. Still it’s tough to say that pullbacks in the index are anything but corrective at present.

On the weekly chart the uptrend drawn from the November 2012 low of 1342 is still being respected and this is perhaps the most watched trend in global markets right now. As you can see from the circled area, the last two weeks has seen strong buying from below the trend, and it seems the bulls are holding on for dear life and defending this trend. For me until we see a weekly close below the trend we should still retain a bullish bias.

I have also looked at the Germany 30 (DAX) and highlighted just how important the 9000 area is on the index. Clearly this seems to be the effective ‘buy zone’.

US Cash chart 1

US 500 cash chart 1

US 500 cash chart 1
Source: IG Charts
US 500 cash chart 2

US 500 Cash chart 2

US 500 Cash chart 2
Source: Bloomberg
US 500 Cash chart 3

US 500 Cash chart 3

US 500 Cash chart 3
Source: Bloomberg

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