Trade of the week: long S&P 500
Since strength begets strength, the S&P 500’s rally to a new all-time record high may be seen as a buying opportunity on any minor retracement lower. We would thus like to go long the S&P 500 index.
(Video Transcript)
Small loss for long the DAX 40 trade
Hello and welcome to trade of the week on Monday, 22 January 2024. Last week, we went long the DAX 40 index and did so for technical reasons and, as you can see here, what we saw back then was an ABC Elliott Wave correction.
We then got this hammer formation, had a buy signal and, yes, the DAX did go up by about 150 points or so in the meantime, but if we stick to our rules and since we haven't hit our upside targets, our stop was below that week's low, we would have gotten stopped out last week.
So that trade ended up with a small loss if you didn't cash in the profits earlier on and what I should have perhaps done instead is just to stick with US markets such as the S&P 500 because basically as you can see here we have a similar pattern.
Trade in the direction of the trend
But we did in fact then very, very strongly and took out all our previous highs, rallied above the January 2022 highs and made a new all-time record high with regards to the S&P 500.
And for that reason, I know a lot of people like to sell into a market that makes new all-time-record highs, but there's a reason why this is happening and when you've got momentum on your side: it's better to trade in the direction of the trend than against it.
So what I'm saying here is basically buy any minor retracement in the S&P 500 in my opinion because basically the trend is your friend. That's pointing up, we have a lot of upside momentum up here.
Go long the S&P 500
And so what I would do for this week's trade of the week is probably go long the S&P 500 on a minor retracement lower towards the January 2022 high around 4,824 with a stop loss just below last week's low at 4,714 and an upside target around the 5,000 mark.
So this week's trade of the week is to go long the S&P 500 around current levels with a stop loss below last week's low and an upside target just below the psychological 5,000-mark, around 4,980 for example.
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