With the Dow and the S&P making new ATHs on Monday while the tech-heavy Nasdaq still trading beneath its 2 September ATH, we have a very fragmented stock market. Of course, the big news last week was on Monday’s opening with the vaccine breakthrough. This lead to the massive gap openings when New York opened after the weekend that may have set the tops in place.
My question Monday morning to my clients was this – is this as good as it gets with bullish sentiment off the scale? Monday’s MSM was ram-packed with suggestions for investors to buy as the sunny uplands of the economies soon getting back to normal were tantalizingly laid out.
While it is too soon to judge the tops are in, we have been trading the dips and are long the Nasdaq in its current bounce. I believe this market is better traded in the short term as swings are still huge and I cannot take a long-term view just yet. Profits are more available trading the short term.
Here is the 1-hr S&P off Monday’s ATH
The decline is a clear five down off the ATH and that normally signifies a change of trend. For the remainder of the week, it has been attempting to recover and is forming a three up with the market closing yesterday near the Fib 50% retrace, which is usually a reversal point.
Another common reversal point is the Fib 62% and less so the 76%. Both are possible targets. Perhaps we shall have an answer early next week, although a sharp thrust higher Monday/Tuesday would likely signal new ATHs..
So that dilemma is why I have been trading short term!
Frozen Concentrated Orange Juice is heating up
For some time now I have been stalking this little-traded market. Fans of the excellent Eddie Murphy comedy Trading Places will understand why this market is more closely watched in the winter months (which we are approaching now).
We have had a very over-supplied market in recent years and prices have been moribund around the historically low $1 region. There is an old saying that when a market has fallen asleep with few trading it and prices are stable in low ground, watch out for explosive moves up out of its range. The question is when, of course. This is superbly illustrated in the weekly chart
The market descended to the $1 region in the Spring of 2019 and stayed there until a year later when it rocketed up in a few weeks to the $1.30 area and in the summer, it fell back again and crucially kissed the trendline drawn off the 2016 high in late September.
And that was the cue to take off to the upside again. Provided my kiss is genuine, we should be in a major bull trend. VIP Trading Club Members are long.
We are along for a wild ride in Cocoa
Another little traded market (by UK traders, that is) is Cocoa – the basis of the mammoth $100 billion global market. Yet few trade it. And perhaos one reason is found in the chart
There is one major bear trend in 2016/2017 but most of the time, it is directionless with a couple of swings of $8k-$10k and many ‘minor’ ones of $3k-$4k.
For most inexperienced traders, this is a recipe for rapid-fire whipsaws! Even placing wide-ish stops of under $100 is fraught with danger.
But By using shorter term 2-hr charts and setting Fib levels spanning the most recent waves, I have been able to stay on top of the many twists and turns.
As an example of what I am doing, here is my most recent trade
I was looking for a long entry on 2 November as the market was heading lower and approaching the Fib 76% ‘make or break’ level. I noted the three down look to the decline as well as the crucial mom div – a very useful set of clues to expect a turn.
I put on my long positions and watched as the market did indeed perform a major turn and headed towards my first target at the gap. And that is when I raised my stop loss to break even so no matter what happens now, I can suffer no loss on the trade. It might even push a lot higher!
Psychologically, with the knowledge that the trade cannot lose money, I am in a powerful position to calmly take profits when conditions dictate that course. Any worry of carrying this trade with no stop or no exit strategy is thus removed and I can sleep well at night. Make sure you can do the same!