Kumowizard

ESTOXX50 - Extremely Bullish... and overbought

FX:EUSTX50   Euro Stoxx 50 index of European listed shares
49 5 1
In all aspects Eurostoxx50 Index is extremely bullish , while US mkts are not so much.

Last daily candle is a huge Hanging Man (normally a good indication for short term trend exhaustion), daily Slow Stoch is overbought and started to point down, and watch 4 Hrs ADX , which is close to 50! ADX is a measure of trend's strength, but most of the time when it is so high, market starts a correction.

How to play the correction? There are two ways: you either try to sell it in a spike ard 3220-3240, or you watch for the 4 Hrs Kijun line and sell the break below, which in line with daily Tenkan and horizontal line means a sell below 3175.

In any case do not allocate more than 0,5 unit on this trade, as again, at the moment it is an initial counter trend trade, and we need to see more signals to be confident with building bigger shorts.
Can you please describe the "initial counter trend trade" more? If i got you correctly, it change the previous falling trend recently, so it is in a changed bullish trend to change back to going down?
Reply
Sry for late answer, but I was off desk for a while. Well, I mean that the major trend both on daily and 4 Hrs is still very bullish., with some signals teling us meanwhile it is overbought. Other indexes started some correction already, Estoxx50 is likely to follow them somehow. But given the px action, this index seems to be the strongest among all, so any short position that we open now has to be considered as a trade against the main trend. Because of this, taking a big size short position is not yet reasonable and recommended. It can develope later into a strategic short, or a trend reversal, or let's say into a more reliable counter trend trade, but until my combined Ichimoku system says the main trend is bullish, the current small short position is nothing else but an early counter trade, with a tight stop. Also it is not prudent to give any deep price objectives now, like e.g. telling you it can or will drop to 3000, or below. That we can not see now.
In case I see more signals that suggests that short term bearish momentum can accelerate further, I will size it up.
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2use Kumowizard
Got that. But you give a higher chance now of the Europoean and Emerging markets to follow suit to the correction in the US market?
Reply
Yes, that is the point. Probability of a short to work from these levels is growing. As I just replied you on the other Nasdaq100 topic, we can not tell in advance how high the probability will grow, so how low the correction can send the price. We can not predict right now exactly if it turns into a major bearish reversal soon, or will be just a few percentage points counter move. But keeping longs or open longs from these levels has a lot worse risk/reard than to have a small short (or at least a flat) position.
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2use Kumowizard
We cannot state, i agree, but we can predict (as our own opinion). At the moment i've seen enough tech traders and charts telling that there is a top in April, and last April-May is indeed a period of a rise and direction change (as summer usually leads lower). With the current feeling of the overvalued market and recent actions, i give a higher chance of a slip, and maybe a resume of a bull market in autumn.
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