The S&P 500 broke the short-term uptrend again yesterday. This is the second time in two weeks that this has occurred, the first break occurred on the 12th July, but the index found support on the 50-day moving average and mustered a rally to make a new high on 19th July of 1380.
The 50-dma around 1330 is still holding up but I suspect this won’t last as the recent volatile uptrend from the June lows has been lacking in bull market character, it’s displaying more of a bear market-like feel, with big moves either way and an unnatural flow of trend which feels counterintuitive despite moving higher. By design this action will hunt out stops and can leave traders feeling confused and uncertain, hence the cycle of volatility prevails until the market finds its natural direction.
There is a time and place for tight stops and you can’t necessarily loosen your stop without slackening on your pre-defined risk, so bear this in mind before placing any trade in this choppy environment. Risking 1 to 2% of your trading pot per trade is usually a good rule of thumb, so as your account moves into profit you can trail your stops leaving a wide enough berth to allow for volatility.
With the markets facing such fierce economic headwinds it’s clear that the S&P is finding the current uptrend difficult to maintain, a break of the 50-dma at 1330 and a break below the 1325 low on 12th July could likely lead to a more decisive decline, watch these levels for more bearish confirmation.
The best trading strategy throughout this recent period has been quick trades in either direction to timed perfection – a tall order for any trader. But the bearish indications of the converging 50 and 200-dma’s, an unnerving and whipsaw uptrend with trend line breaks plus the recent breakout of the VIX from its shorter-term downtrend – doesn’t bode well for the bulls.
Although I’m leaning toward a bearish stance and have positioned accordingly, I respect the possible outcome of a bullish triumph and the fact that the next break in either direction could be the propelling force. I’m keeping an eye on moves higher towards 1365, but will watch the action should it get there for signs of exhaustion or gathering momentum.
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