Trade of the week: US 500
Explore a long position strategy on the US 500 index following Friday's strong rebound, targeting a potential short-term bounce in this high volatility environment.
Current trade overview: long position
In the current market environment, a trading opportunity has been identified with the US 500 index. The strategy involves re-entering a long position based on Friday's strong rebound and the potential for a decent-sized bounce after the recent break downward. Market sentiment appears to be shifting, creating a tactical opportunity in this high volatility environment.
Trade setup
- Entry point: long US 500 at 5609, at current market levels
- Stop loss: set at 5500, positioned at last week's lows to protect capital if the bearish trend resumes
- Target: aim for an upside target of 5900, capitalising on the expected short-term bounce
Risk-reward ratio
This trade is structured to balance risk and reward effectively, risking 109 points to potentially gain 291 points (a ratio of approximately 2.7 to 1). This makes it an attractive proposition for those willing to take on the associated risks. However, it is important to note that we are in a high volatility environment, and this may not be a long-term bounce but rather a tactical trading opportunity.
Market context
A similar trade was stopped out last week within hours of publication due to significant market volatility. However, Friday's strong rebound suggests that the analysis may have been correct in direction but early in timing.
Recent price action in the US 500 indicates potential support forming around current levels. While an immediate return to the strong bull market seen over recent months isn't expected, technical indicators suggest there is fuel for a decent-sized bounce in the current market after the sharp downward move.
Previous trades update
The short US Tech 100 position from 21780 has been closed at current levels for a good profit, helping to improve the overall "Trade of the week" performance.
The long AUD/USD trade from 0.6225 remains open, as there are indications of potential further upside in this currency pair. This trade aligns with the broader view on US dollar weakness that may support equity markets in the short term.
Cautionary note: while this trade presents a structured opportunity based on recent market action, we are in a high volatility environment. Traders are advised to consider their risk tolerance and market outlook before engaging in this trade. The expected bounce may only last a couple of weeks rather than signaling a return to the previous bull market.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
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