Two new trade ideas and two updates

US Stocks
Source: Bloomberg

US 500 cash – NEW IDEA

The rising wedge pattern drawn from September and October 2014 has broken and a more cautious stance is now warranted. There is also a clear double top in play and a close through the neckline at 2038.9 would be a bearish development and would suggest a move to 1960 is on the cards. There is strong support around the 1980 area (as shown by the blue shaded area) that needs to break as well.

I would look at going short the S&P 500 cash on this break, placing a stop loss at 2070.

Price action however is a little more positive if we look at the daily chart and this is highlighted clearly by the long wicks on a number of the recent candles (see the right hand chart). Strong buying is therefore still in play and until these bids dry up the index is going to struggle to break the double top neckline.

On the weekly chart there is significant divergence (see left chart chart) with price making a higher high and the 14-day RSI and stochastic making a series of lower highs. This can be a powerful sign of an impending reversal and this weeks ‘doji’ pattern highlights clear indecision.

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Traders could look to sell a small amount of EUR/GBP at market (currently £0.7265) given the downtrend that is materialising. Conditions are not overly bearish just yet though, hence keeping position sizing small. However, I feel adding and increasing position sizing on a break of the £0.7234 to £0.7239 area makes sense. This support represents the 38.3% retracement of the February to March sell-off and 20-day moving average and a break here would add to my bearish conviction.

Stops could be placed at £0.7346, just above the clear supply seen on 28 March. I will be looking for a move towards the £0.7100 area.

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We saw some better buying in EUR/USD overnight as European manufacturing data improved and US data showed increased vulnerabilities. The question traders are asking is whether we actually get a snap back in US growth in Q2, with current Q1 GDP tracking models running closer to a meagre 1%.

If it weren’t for the fact that the European Central Banks quantitative easing program is keeping European bond yields from rising then EUR/USD would probably be nicely above $1.1000.

The prospect for a below expectations US payrolls report on Friday is a concern given the employment sub-component of the manufacturing ISM report and ADP private payrolls report, which came in below expectations and with that in mind I feel adjusting stops closer to the spot price is prudent. $1.0930 seems like a good level to lower stops too, with this being above the December downtrend and 61.8% retracement of the move lower from $1.1052.


USD/JPY has found good selling at the 20-day moving average (now at ¥120.33) and the pair can’t seem to close above the December downtrend. Stochastic momentum is still rising, but I guess this is determined by time frame and until we see a break of both levels then I feel traders are likely to range trade the pair.

I am closing the trade idea at market (¥119.68 at the time of writing) for a profit of 44 pips or 0.4% as my short-term technical and fundamental view is much more nuanced. I am happy to wait and see how the US payrolls play out, especially with the price action in the equity market becoming more supportive of long JPY positions.


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