Hi all,
We have been reading market chatter about whether the S&P 500 Index is too high and due for a correction, in the face of the recent sell-offs.
Hence, I would like to give the technical view of things and perhaps share more about using the Relative Strength Index Indicator (RSI) at the same time.
Please take note this is NOT A BREAKOUT trade Idea that I usually write, but more of a simple unimaginative "Follow the Trend" trade. So you can sit this one out if you are only into Breakout trade ideas. Alright, here we go:
We note that price has been trading along a very steady up trend line, since Nov 2013. The trend angle is not very fantastic at about 22 degrees. However, the "not so great angle" also indicates that this trend can last much longer.
We observed that this trend line was slightly broken at the start of Oct 2014, leading to questions about whether the Bullish trend has come to an end.
In order to answer the question raise in 2, we can take a look at the Relative Strength Index Indicator (RSI), 14 periods, for clues.
We go back in time and look at low points in the SPX and match them with the RSI (14) values. You will see that RSI bottoms up around 33 and SPX trends higher. This means that as long as RSI stays above 33 levels, the bullish trend is still intact.
Also, we note the latest RSI low was formed at 36, slightly higher than the RSI support of 33.
Hence, we can conclude the slight breakout of the trend line in is a false breakout and trend is most likely to hold.
We project that price action is will most likely attempt to trade towards 2,000 levels once more.
Essentially, this "Follow the Trend" trade is intended to capture the price movement, as it attempts to have another try at 2,000. Some might say there is not much room for profit, but for friends who are trading Futures, it is pretty good enough.
Stop Loss: Below 1,935.
Take Profit: 2,000. Actually, long positions can be closed early around 1,990s.
Risk: There is a risk that the Bullish trend will evolve into a sideways consolidation or even form a topping formation. This is why it might be a good idea to close out when price is about to reach 2,000 and let others sort out whether to take the index higher or lower.
Similar Idea:
You can switch to the chart for Dow Jones Index and see similar formation in both the price action and RSI (14). You can apply the same RSI concept in , and practice on reading RSI support and resistance levels.
References:
Using Support and Resistance Levels of Relative Strength Index> Technical Analysis for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.
We have been reading market chatter about whether the S&P 500 Index is too high and due for a correction, in the face of the recent sell-offs.
Hence, I would like to give the technical view of things and perhaps share more about using the Relative Strength Index Indicator (RSI) at the same time.
Please take note this is NOT A BREAKOUT trade Idea that I usually write, but more of a simple unimaginative "Follow the Trend" trade. So you can sit this one out if you are only into Breakout trade ideas. Alright, here we go:
We note that price has been trading along a very steady up trend line, since Nov 2013. The trend angle is not very fantastic at about 22 degrees. However, the "not so great angle" also indicates that this trend can last much longer.
We observed that this trend line was slightly broken at the start of Oct 2014, leading to questions about whether the Bullish trend has come to an end.
In order to answer the question raise in 2, we can take a look at the Relative Strength Index Indicator (RSI), 14 periods, for clues.
We go back in time and look at low points in the SPX and match them with the RSI (14) values. You will see that RSI bottoms up around 33 and SPX trends higher. This means that as long as RSI stays above 33 levels, the bullish trend is still intact.
Also, we note the latest RSI low was formed at 36, slightly higher than the RSI support of 33.
Hence, we can conclude the slight breakout of the trend line in is a false breakout and trend is most likely to hold.
We project that price action is will most likely attempt to trade towards 2,000 levels once more.
Essentially, this "Follow the Trend" trade is intended to capture the price movement, as it attempts to have another try at 2,000. Some might say there is not much room for profit, but for friends who are trading Futures, it is pretty good enough.
Stop Loss: Below 1,935.
Take Profit: 2,000. Actually, long positions can be closed early around 1,990s.
Risk: There is a risk that the Bullish trend will evolve into a sideways consolidation or even form a topping formation. This is why it might be a good idea to close out when price is about to reach 2,000 and let others sort out whether to take the index higher or lower.
Similar Idea:
You can switch to the chart for Dow Jones Index and see similar formation in both the price action and RSI (14). You can apply the same RSI concept in , and practice on reading RSI support and resistance levels.
References:
Using Support and Resistance Levels of Relative Strength Index> Technical Analysis for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.