US30 - Dow30 is savaged as volatility ramps up
Trade set up – Given the elevated implied volatility in markets (the VIX index sits at 22%) and the potential for further liquidation from systematic funds, it's hard to be long US equity indices. With that in mind, our preference, at least in the short-term, is to sell strength until price can close above the 5-day EMA.
That said, with the technical damage in play and the Dow in free fall, we can also use the momentum in the market, initiating short position on a break of the 50% retracement (as shown in orange) of the June to October rally – which is playing out as I type. The target is set at the support band between 24,710 and 24,431. Stops to cover on a rally through the 25,754 (the 9 November low).
Why we like this trade – There is so much confusion for traders to have any genuine conviction of buying, and this idea is really hoping to align with the falling knife, and staying with the momentum in the market. The overnight move was severe with both the US30USD, S&P 500 each shedding over 3%, with the Dow falling to lowest level since August 24th. Rising bond yields have clearly weighed on market sentiment, although there have been a number of other schools of thought as to exactly why the index was savaged.
One consideration is how price reacts to the rising uptrend, drawn from the 2016 lows, so this does represent a risk, as the bulls may try and defend this level. Tactically, it feels prudent to keep position sizing to a minimum giving the vol and potentially looking to increase conviction should we see price close through trend support.
Disclaimer.
Trading leveraged products carries a high level of risk and may result in you losing substantially more than your initial investment. Pepperstone Group Limited is licensed and regulated by the Australian Securities and Investments Commission (AFSL 414530). Pepperstone Limited is authorised and regulated by the United Kingdom Financial Conduct Authority (FRN 684312). This information not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
That said, with the technical damage in play and the Dow in free fall, we can also use the momentum in the market, initiating short position on a break of the 50% retracement (as shown in orange) of the June to October rally – which is playing out as I type. The target is set at the support band between 24,710 and 24,431. Stops to cover on a rally through the 25,754 (the 9 November low).
Why we like this trade – There is so much confusion for traders to have any genuine conviction of buying, and this idea is really hoping to align with the falling knife, and staying with the momentum in the market. The overnight move was severe with both the US30USD, S&P 500 each shedding over 3%, with the Dow falling to lowest level since August 24th. Rising bond yields have clearly weighed on market sentiment, although there have been a number of other schools of thought as to exactly why the index was savaged.
One consideration is how price reacts to the rising uptrend, drawn from the 2016 lows, so this does represent a risk, as the bulls may try and defend this level. Tactically, it feels prudent to keep position sizing to a minimum giving the vol and potentially looking to increase conviction should we see price close through trend support.
Disclaimer.
Trading leveraged products carries a high level of risk and may result in you losing substantially more than your initial investment. Pepperstone Group Limited is licensed and regulated by the Australian Securities and Investments Commission (AFSL 414530). Pepperstone Limited is authorised and regulated by the United Kingdom Financial Conduct Authority (FRN 684312). This information not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
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Disclaimer
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