- Last week, we witnessed a sharp decline of SP500 , and I predicted very exactly this decline in my post:
There are lot of reasons why it happened.
+ Withdraw from EM
+ Negative data from China.
+ Profit Taking after setting new high.
The problem is the downtrend is keep going to extend or halt.
This week, SP500 and all Forex pairs having USD will be affected greatly by US economic data. There are lot of reports and events are released, and the would be very high.
I consider key data next week:
+ Markit PMI
+ Durable Good Orders
+ Consumer Confidence
+ FOMC Minutes
+ GDP report
+ Pending Home Sales
+ Personal Spending
+ Personal Income
There are a lot of important data, and traders must understand what is more important and how market will react after releasing data.
The most important event will be FOMC Minutes on Wednesday, and most analyst s as well as traders expect FED will continue tapering.
I have 4 options on the table now:
- 1 FED taper
- 2 FED no taper
- 3 Positive Economic data
- 4 Negative Economic data.
The combination will be: 1 with 3, 1 with 4, 2 with 3, 2 with 4.
Firstly, trader must choose between two options: Taper or no taper before considering next options and the way market reacts.
In my trading experience, when all people have the same side, I choose the opposite side. Most people choose FED will taper on Wednesday, but I don’t. Obviously, I respect other viewpoint.
I think FED will shift to March and wait for good data to confirm for their decision.
Thus, we just have two options now:
- FED no taper and positive data
- FED no taper and negative data.
Normally, if FED no taper, SP500 soars up and vice versa, but nothing is true in all circumstances, everything could be change, and when the fact changes, we change too. We witness when FED chose taper, SP500 soar up, not decline. The fact here is FED want Stock can stand on its foot despite of taper or no taper. It means US economy has to develop stably and don’t need catalyst from FED. If US economy still needs morphine from FED, FED provides it.
Considering US economic data this week, I believe that GDP report on Thursday will be positive, but I don’t believe Personal Spending and Personal Income as well as Durable Good Orders are positive.
The mix of data might trigger for Sell off especially if it combines with FED no taper. This is really a catastrophe. Traders should not ignore Risk Aversion. This is the most problem I worry.
Key support at 1810 is pierced. Now the next is 1772.87, next weak support is 1753.79 I show on the chart.
I draw on the chart all options, and my strategy is:
- I wait Durable good orders and Consumer confidence on Monday, If those reports are positive, combine with my option is FED no taper, SP500 will test 1810 key . If those reports are negative, combine with my option is FED no taper, SP500 declines to 1752 level.
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