Trade of the week: stand aside

Current trade overview: staying on the sidelines

In the current market environment, the prudent trading strategy is not to trade at all. Following last week's successful short position on the US Tech 100 (Nasdaq 100), which reached its long-term target within days rather than the anticipated months, this week's recommendation is to reduce risk exposure and observe market developments from the sidelines.

Trade recap

Last week's trade of the week recommended:

• Entry point: short US Tech 100 at 19,100 on a minor bounce
• Stop loss: positioned above the previous week's high at 20,341
• Target: long-term downside target around 16,500

This target was reached within days rather than the expected months, driven by exceptional market volatility following President Trump's announcement of 25% tariffs on all US trading partners.

Risk management rationale

This week's recommendation to abstain from trading is based on several key factors:

• Extreme market volatility creating unpredictable price movements
• Potential forced selling as hedge funds liquidate positions to meet margin calls
• Cross-asset correlation breakdowns with traditionally uncorrelated assets like gold and bitcoin also experiencing declines
• Confusing macroeconomic picture due to ongoing uncertainty about US trade policy
• Risk of bear market conditions developing across major indices

Market context

The current market environment shows signs of distressed selling across multiple asset classes. Gold prices fell at the end of last week despite typically being a safe-haven asset, while bitcoin has also begun declining. This pattern often indicates institutional investors are liquidating profitable positions to cover margin calls on losing trades.

The US Tech 100 has already fallen 10% this year, breaking through a long-term uptrend line dating back to January 2023. Technical analysis suggests the bounce seen over the past two years may have been an ABC correction in Elliott Wave terms, with more significant declines possible.

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.