Trade of the week: short S&P 500
Negative divergence can be seen on the daily S&P 500 chart and it looks to be at least short-term overextended.
We would, therefore, like to short the S&P 500 with a stop loss at 5,200 and a downside target around the 5,000 mark, even though it’s a risky trade against the uptrend.
(AI Video Summary)
Previous USD/JPY trading outcome
In the previous week, Axel Ruldolph made a smart move by betting on the US dollar to increase in value compared to the Japanese yen (USD/JPY). This turned out to be a good decision and he is currently making money from it. However, he is concerned about the upcoming release of Japanese inflation data, which could cause the market to become more volatile. Because of this, he suggests selling his investment to reduce the risk.
This week's trading opportunity
For this week's trade, Rudolph has noticed something interesting on the daily S&P 500 chart. Even though the stock market has been doing well and reached a new high, there is a signal that suggests it might start going down soon. This signal is called a negative divergence, and it happens when the stock's price goes up but a certain indicator shows a lower high. Based on his analysis, he believes there is a high chance the stock market will decline, possibly even reaching a level of 5,000. This is going against the current trend, but his technical analysis supports this idea.
To make this trade, Rudolph recommends selling the S&P 500 at its current price and setting a limit to stop the losses if the price goes above 5,300. He also suggests setting a goal for the price to reach 5,000 or lower. It's important to note that this trade is considered controversial because it goes against what most people in the market are doing. This means there could be big fluctuations in the market, so it's better suited for experienced traders.
This information has been prepared by IG, a trading name of IG Markets 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.
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