Trade of the week: short DAX 40
Since the DAX 40 is displaying potentially short-term toppish technical signals we would like to go short the front month futures contract or index with a stop loss above last week’s record high and a downside target at 18,250.
(Video Transcript)
Previous soybeans trading outcome
Hello and welcome to this week's "Trade of the week" on Monday, the 20th of May. About two or three weeks ago, we went short soybeans and as you can see here on the daily financial BET chart, we were in profit because we sold around 1,237. And then we've just been bobbing along the 1,200 mark, but didn't break through the support area before trying to bounce back at the moment.
So what you could do in this case is perhaps just cash in your profits as it does look as if further sideways trading might be seen and perhaps even a continuation of the advance or if you wanted to run this trade, still what you could do as long as you stop loss level to above the highs seen at the beginning of May at 1,252, for example. Or what you could also do is just lower your stop loss level to your entry level. And if you have a guaranteed stop loss to break even, that is to say at 1,237, then you wouldn't risk any downside on this trade.
Previous USD/CAD trading outcome
Now, last week my colleague Chris Beauchamp went long USD/CAD. As you can see here, we had a nice uptrend, but he had to put a stop loss in place below the last relative low, which he did at C$1,3600. And unfortunately that got stopped out in the course of last week, even though we didn't have any follow through to the downside. But that trade is no longer valid.
This week's trading opportunity
And this might be a risky trade. So not for everyone. But what I'm discerning here is that we had on Thursday what is called a "Bearish Engulfing Pattern", which is negative. And we also had it at a time where we had a new high being met, a new record high in the DAX 40, but we had a lower reading on the relative strength index in overbought territory, and that means there is negative divergence in place. And quite often when that happens you do tend to get a correction against the trend. Now this might already be in it. The move down to last week's low at 18,623. But since we are seeing a gingerly rise here in the DAX 40 contract, I would actually like to sell into this because of this technical pattern and do so with a downside target around 18,250 or so, which would be a good risk reward set up.
So this week's "Trade of the week" is to go short the DAX 40 contracts and do so or the index around 18,770 with a stop loss above last week's record high and a downside target around 18,250.
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