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US 500 - Potential Shorting Opportunity

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A lot of people have messaged me asking if I think they should initiate a long position now? I cannot answer this as my personal view is that the US indices will see some form of major correction which will be a great shorting opportunity. I am waiting for this on the side lines as on my previous shorting attempt my timing was out and I made a loss so it was a failed trade. My short started off very well but my timing meant that when this rather quick and large rally came my trade was caught up in it.

What I have been doing is day trading on the 'long' side the US indices. The reason why I am day trading is so that I am consistently and regularly taking my profits and a few losses. Also I believe that the trend is showing signs of 'exhaustion' and 'weakness' so there could be a turning point soon but I do not know if this will happen or if it does then exactly when. Critical junctures are coming so the price action will tell us the future narrative.

Therefore at this moment in time based on price action alone any short term trades would be in my personal opinion on the long side as my trading philosophy is not to go against the trend regardless of my personal emotions and beliefs.

@Caseynotes posted something very interesting and useful showing how long bull markets last compared to bear markets for US and it means any major trend reversal if it happens will be sharp and quick in terms of timescales when compared against any bullish upward trends. I personally do not feel comfortable from a risk perspective to keep any new 'long' positions on US indices open for a longer period of time hence why I am day trading as if any of the trades go against me on a particular day then I have cut my losses quickly.

 

 

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@TrendFollower,  once price confirmed the break of resistance (yellow) and got back into the prior range (blue) the most likely scenario was to then retest the top of the range which it is doing now. It doesn't pay to buy directly into resistance but rather wait and see how price deals with it first. As ever there can only be one of two possible outcomes at this important level (2812.8). I wouldn't bother trying to predict which way but once the issue is resolved the next target is pretty obvious.

1208793487_SPX500()Daily.thumb.png.59d810491fe79a24c9e2f0c614890697.png 

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Interesting, what do you think about the risk involved in this trade when the US macros are so uncertain?

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@Caseynotes,

I agree with you on the $2812 level and that it could go one of two ways.

I would like to add a 3rd way which is sideways whilst the world works out what is going on with US-China trade, Brexit, Venezuela et al. It was something Elle posted where a sideways trend is possible with an upward slow bias. Some would argue this is the same as upwards but it would be a different type of trend to trade with different timescales. 

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@ArthurHouse,

Great question. From an economics perspective the 'Economic Policy Uncertainty Index' is at its highest point since 1985. 

http://www.policyuncertainty.com

I also think this uncertainty in US macros is helping the cause for Gold to appreciate in price.

To answer you question, in my personal opinion I think the risk has increased in this trade when considering opening a new 'long' position. I just have a feeling that there is going to be an almighty correction should any bad news be released by the US Government, US companies (earnings results) and the media.

However, short term and day trading is the only way in my opinion right now to open new 'long' positions on US indices. The price action does not warrant a 'short' to open now as that would be suicidal. As @Caseynotes suggests and I agree with him that a critical price point is approaching when the market will have to choose a path and the price action will tell us what that path is. Until then there is uncertainty and there will most certainly be volatility. I would not be surprised to see the volatility index spiking during this period.  

 

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When looking at all three major US indices it seems the trend is weakening. I felt this before but then the trend just resumed upwards. The main difference on this occasion is that it is very close to the 'critical point juncture' as highlighted by Caseynotes on an earlier post. 

If there is to be a trend reversal to the downside or even sideways then It seems the Nasdaq 100 is leading the way ahead of the S&P 500 and Dow Jones. 

The US 100 (Nasdaq 100) is still above it 20, 50, 100 & 200 DMA. What is interesting is that the 20 & 50 DMA's are sloping upwards but the 100 & 200 DMA are sloping sideways which to me indicated there are not been a trend reversal which can be evidenced by the price action. At this specific moment in time one could argue that the price behaviour could either continue upwards or decide to go on a sideways journey. If the any of the DMA's begin sloping downwards then for me a short position should be at least considered. At the moment it seems like a sideways move may be materialising with a small upward bias but this could change very shortly. 

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@TrendFollower & @ArthurHouse, true enough the macros are uncertain at the moment but of course the future is always uncertain. The US macros are the drivers of the US markets and I would think there would need to be a definite trigger for the break of such an important resistance level and the most likely candidate would seem to be some kind of positive development in US-China relations.

If nothing happens then as TF suggests there is likely to be some sideways movement on time based charts though not for long. In these large markets there will always be probing for weakness and as time passes without a break through the bears will become increasingly confident and price will be forced to seek support. If that happens there are short term support levels before the bottom of the range which will offer some respite, but the market will really be looking for new news.

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@Caseynotes, I agree with your US macro sentiment. 

It looks like the sideways activity that I assumed is beginning to show signs of possibility. 

I agree that the US-China trade situation is going to move the US indices one way or the other and we should find out in the coming weeks. 

I do think that the upward trend is weakening and seems exhausted. It may give one final push before pausing before any critical news that moves it strongly either up or down. 

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On ‎12‎/‎02‎/‎2019 at 20:26, elle said:

currently , similar (ish) 

Capture es.PNG

 

Capture haha.PNG

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US indices are looking a bit toppy. The upward trend is looking exhausted and waiting for either positive / negative news. 

The US indices keep enticing potential short sellers and teasing them but the market is ruthless and its price will behave like one least expects hence why 81% of IG's retail customers lose money when using CFD and Spread Betting 

Call me cynical but the could the US Federal Reserve keep propping up US markets? They may know what a disastrous outcome it could be if they did not. 

Everything you need to know about the Federal Reserve’s balance sheet — and how it could impact you

https://www.bankrate.com/banking/federal-reserve/federal-reserve-balance-sheet/

The US Federal Reserve is rather vague when it comes to clearly outlining its plan for reducing its balance sheet and ending a decade long QE programme. 

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The longer the US-China trade talks continue and the longer the matter is unclear and lingers on, the major US markets will not begin a major sell off. This will only happen once the US-China trade deal is confirmed. Up until then there will be plenty of buying, speculation and anticipation driving up US indices at at the very least sideways.

The major shorting opportunity that some of us here on IG have been waiting for can only begin once the positive news is out of the way.

Still no trend reversal or confirmation via price action to initiate a 'short' trade from a trend following perspective. 

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At this point I have a feeling that the US indices are looking to make new 52 week highs. The trend is very strong and has a bullish uptrend bias. 

One can always look for potential shorting opportunities in almost any asset that can be traded. It is not difficult for one to suggest that there is a potential shorting opportunity and give reasons why they think that. The market does not always confirm to economic theory, market expectations, expert analysis / interpretation, technical analysis, etc. 

Traders do not have a crystal ball in terms of knowing what will happen six months in the future. The market is a crystal ball as it is telling its participants and painting a picture of what it can see six months in the future (market discounting mechanism). 

I have been wrong so far in looking at a potential shorting opportunity in the US indices. When I made my assumptions there was a strong bias downwards and a strong move downwards did occur but then after this we all can see what happened. My assumptions were tested and proved incorrect. That is fine. That is how one can learn and gain valuable experience for future trades. The key was I cut my losses quickly and exited, minimising my losses. 

It would be ironic if we now see a monster downward move! It can happen but the one thing I keep telling myself if never go against the trend regardless of what I think or what my personal emotions and beliefs are.

Never trade against the trend. 

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@elle,

An interesting watch.

This is an excellent example of why not to trade against the trend which is clearly up at the moment unless you are looking at a yearly timeframe!!!

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  • US 100 (Nasdaq 100) has taken out the lowest mountain point of the three points. It is now looking to surpass the second mountain point.

 

  • US 500 (S&P 500) it trying to take out the lowest mountain point of the three points but is struggling to surpass and stay about it.

 

  • Wall Street (Dow Jones) has also taken out the lowest mountain point of the three points. It is now looking to surpass the second mountain point. 

 

With US-China trade talk extensions being discussed this week will be very interesting in terms of price action as it is reported that such extensions may already be priced into the markets. 

 

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On ‎05‎/‎02‎/‎2019 at 14:02, elle said:

saw  this, make of it what you will .....................

Capture es.PNG

 

Capture sptrd.PNG

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For me the 'Litmus Test' is the three mountain test from a chartist perspective. All three of the major US indices must surpass the highest point of this three mountain test and stay above it otherwise I fear there could be a monumental shorting opportunity coming very soon. 

My gut instincts tell me that there is a large correction and downward price action imminent on all three US indices. However, one cannot trade on gut instincts and the price action is not supporting this at the moment. Therefore the 'short' trade is not on.

The key for me is to identify trends as early as possible. Here I am applying my 'Assumption Testing' methodology. I have an assumption that there could be a humungous shorting opportunity on US indices. I am monitoring the price action of all three. If there is to be a trend reversal then I should spot it pretty quickly and be able to open a 'short' position should certain indicators meet my requirements. Identifying the best and strongest trends to trade is an art and requires one to be ahead of other traders and investors in spotting such trends. This requires assumptions which one allows the price action to test. Without this one can never spot strong trends earlier than others. 

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Based on reports I had read, I must admit two things.

One I never thought the US equities would get to this price point and two - 'Never believe what you read in the media about stock market prices'. 

Right now one just simply cannot effectively short any of the major US indices. It is pure suicide. Trump has generally been good for the US stock market and if anything a window of buying at cheaper prices has presented investors around the world in US equities. 

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What do traders and investors on IG Community think will happen should the three major US indices hit their respective 52 week high price level?

  1. Does the IG Community think they will continue to go upwards and if so why?
  2. Does the IG Community think this will present one of the biggest shorting opportunities of recent time and if so why?
  3. Does the IG Community think there will be sideways price action for a considerable period of time and if so why?

I shall try and keep a score of how many of you respond to 1, 2 and 3 and see what the IG Community thinks and then what actually happens.

This will be an interesting exercise that will really provide some insight to the price action expectations of the IG Community for US indices.

I hope traders and investors alike partake in this. @JamesIGyou may wish to share with the IG Analysts / Staff who may wish to participate if allowed to do so.

I am including @Caseynotes, @cryptotrader, @elle, @PandaFace who seems to be both active and frequent participants on the IG Community to help start kick things off but please do not wait for them to respond. 

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Dear @TrendFollower , you probably wont like this response but , I just trade what I see, not what I think. There is so much geopolitical stuff going on that it could screw your thinking.   However, the politicians & Central Bankers seem to prefer the markets going up, any dips & the Central Banks come to the rescue.. We are over halfway through the US Presidential cycle & I'm sure Potus will want everything looking good next year.

 

I attach a current chart. As you see we are back at a trend line resistance. I have suggested some consolidation @ here before a further move up, but who knows. Short term trend is up, but you could also say that the market looks sideways albeit in a big range. Sideways is my best guess

Capture tfo.PNG

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@elle

No one is asking anyone to trade anything differently or in fact telling anyone how to trade. I too just trade on price action that is occurring now. 

I think far too many times traders are scared to write what they think in case they are judged, criticised or humiliated, etc. One must be honest with their opinions as long as they are presented in a professional manner and cause no offence or make it personal by belittling anyone. 

There is absolutely nothing wrong with having an opinion or making an assumption. If one does not have a view on what they think is going to happen with the price action then how can one make a trading decision either on the 'long' side or 'short' side? One must form a view based on various indicators, activities and price behaviours. These will go into their 'basket of information' to help them make an informed trading decision. Either they will open a 'long' trade or open a 'short' trade. Oh yes or they will decide not to trade. If they trade then they will set their stop loss based on their risk management strategy. 

You state you trade what you see but that 'sight' then becomes your 'thoughts' and you actually trade based on what you are thinking at the point in time based on information and data you have analysed up until that point.

My posts are pretty open. I write what I think so my followers and readers of my posts are in no doubt of my thought process. Based on past price behaviour it is clear to see that since Christmas (past three months) the smart trade was to go long purely based on price action, indicators and trends.

Thank you for responding @elle and I shall put you down for option 3. 

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are you still short how is the trade going for you. and i think you dont understand trading if you think you get credits for a short. what you actually get is a day to day funding charge plus you get chrged dividends. great trade mate , not

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On ‎07‎/‎01‎/‎2019 at 17:24, elle said:

now looking like it wants to return to the "Fed Spike" 

Capture fed.PNG

just for the record - this was an example of my "thinking"  -  others were shorting this ;)

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@george2803,

No, I am not short. I have not been for a while. I am day trading on the long side. If you follow this thread then I shared a live trade with the IG Community and it is completely transparent when I opened any positions and when I closed them. You should follow it before you judge and comment. If after that you want to offer any insights into better and more effective decision making for trading execution, you can share this. 

If you feel like you have a better understanding of trading than me then please do share a live trade from inception to closure especially as I do not understand trading and you understand it better than me. You can share with the IG Community so that we can all learn from you. 

You are right it was not a great trade but if you follow this thread from the start then you will see that I was up a lot of points on this trade so was it an incorrect decision at that moment in time? If you think it was then please explain how you would know that if you were making trading decisions on price action and various indicators such as moving averages? I opened the short during that sharp decline downwards trading with the trend hence the short position. It could be that I kept my stop loss too wide or maybe I should have day traded on the short side hence closing positions daily reducing the risk exposure. 

I am not worried about having losing trades. You obviously do not know anything about me. I have shared a live losing trade with the IG Community but please do take the time to read my other threads and posts before making any judgements. 

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@elle,

So when others were shorting were you going 'long'? 😉

I have no idea if you are trading US indices and if so which ones and whether you are long or short based on all your previous posts and charts. 🤔

Do you have an open 'long' on any of the US indices?

The price action from the start of October 2018 to 26th December 2018 was downwards. From January 2019 to March 2019 (to date) it has been upwards. During this time period one could have shorted US indices and then gone long on the very same US indices based on price action. It is all about timing. My timing was clearly out but there will have been many (far better traders than me) that would have profited on both these time periods using 'short' and 'long' trading strategies. 

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12 hours ago, TrendFollower said:

@elle,

So when others were shorting were you going 'long'? 😉

I have no idea if you are trading US indices and if so which ones and whether you are long or short based on all your previous posts and charts. 🤔

Do you have an open 'long' on any of the US indices?

The price action from the start of October 2018 to 26th December 2018 was downwards. From January 2019 to March 2019 (to date) it has been upwards. During this time period one could have shorted US indices and then gone long on the very same US indices based on price action. It is all about timing. My timing was clearly out but there will have been many (far better traders than me) that would have profited on both these time periods using 'short' and 'long' trading strategies. 

I really don't know what you are trying to achieve with this "conversation". Please do not tag me in it any more  - thank you

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Elle (not tagged you as per your wishes)

19 hours ago, elle said:

just for the record - this was an example of my "thinking"  -  others were shorting this ;)

My response was in line with your comment above and sense of humour but obviously you do not appreciate the same sense of humour back. 

What I am trying to achieve in this discussion is to establish if you are trading any US indices and if so are you 'long' or are you 'short'? You post a lot of charts with very few words. I appreciate a picture can tell a thousand words but new traders or inexperienced traders could misinterpret your charts or not fully understand or appreciate them. 

This thread is all about potential shorting opportunity for US indices. Now obviously the potential opportunity has in fact been long since Christmas. Who on the IG Community is long? When did they go 'long' and why? At what point did their analysis and use of various indicators allow them to initiate a long trade?

I think either you are reading too much into my post or misinterpreting it. Why must anyone be trying to achieve anything within a conversation? Are my questions really that difficult to answer? The inference I make from all your charts with supply zones and demand zones is that you could well be 'long' on US indices if you are following your own charts. However that is only an assumption from me. I do not know but what would be interesting is to try and understand if you are long then when you went long and why? I explained why I went short and why at the time. It is very easy to post lots of charts and hide behind them. They are meaningless unless there is some context, analysis and application behind them. 

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21 hours ago, george2803 said:

are you still short how is the trade going for you. and i think you dont understand trading if you think you get credits for a short. what you actually get is a day to day funding charge plus you get chrged dividends. great trade mate , not

I think the problem/confusion here is the continued use of a thread that's title is way out of date.

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