Let's begin this week's blog piece with Sugar. A few weeks ago we discussed that Sugar is set up for a decline in both short-term and swing. For the swing, it was too early because of the lack of the fulcrum point. There was a clear level which if taken out would have triggered the down move. To read the full analysis go to “Short-term and Swing COT patterns in Sugar and Japanese Yen. Will the SPY continue its trend?” from 19th of January 2020.
That short-term signal did not materialize because the market didn't break below this level in the next few days. It went to the target but first made a new high. That from a price action perspective invalidates the signal. So target hit but no entry signal :)
But the swing setup is still present. Latest COT data shows that Commercials continue to build their record net-short position. Also, we are getting closer to the appropriate time for decline according to the seasonal indicator (blue line, courtesy of Larry Williams). This time according to different seasonal patterns is somewhere around the last week of February and the first week of March.
At the moment this market is trying to make a top but there are some residual signs of strengths. We have to be very selective if we are going to take any short-term signals. The wisest thing would be to wait for Sugar to break below the 14.00 level. Then on the first pullback, I'll be looking to be a seller. I'll cover those opportunities here in the blog.
I don't have any new opportunities here to discuss but I strongly suggest you go back and read the previous blog post. A lot of price action trading lessons there. Especially how the trigger levels are changing through time. It is worth reading.
Another lucky call in the last week's blog post. 3230 was suggested as a bottom for the S&P500. The market (E-mini futures) reached 3233. Almost to the tick. Unfortunately, that level didn't hold the second attempt. I've built a long position but Friday's movement took my stop out.
The reason for this big daily movement was the escalating situation with the coronavirus. It is a problem but I don't think it will hold the market down for long.
My work suggests that the target for this downfall might be 3130. That level could be reached during the next week, according to the seasonal indicator (blue line)
Using the price action trading we could say that for Monday most probable are:
If there is a good short signal, consistent with the above target (I.e. has a good risk-reward) I'll take it but I still prefer bullish signals.
One more thing is worth mentioning here. For now, the correction is not big enough to position oneself in individual stocks. But some good stocks which earnings reports are coming might experience a decline because of the broad market sell-off. That will present good prices for companies which might deliver positive earnings surprise. If you want to learn how to find such stocks, click here.
Founder of Piece of Trading
Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer
Seasonal indicators courtesy of Larry Williams, ireallytrade.com. Charts made with TradeStation®. tradestation.com
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