After the worst December seen since 1929, the 2019 year-to-date performance of equities has been very strong, with most major indices gaining an average of between 8% and 12%. Now, with the bullish sentiment still hold holding near it’s highs, the market seemingly discounting no Federal Reserve interest rate increases for 2019, as well as pining it’s hopes on a favourable outcome with regard to the US-China trade talks, it may be wise to act with caution as complacency seems to be the order of the day. From an economic standpoint, for now, the US economy remains relatively stable, with employment growth and wage increases in positive territory while investors await Q4 GDP.
Could the market potentially be making an error in believing that we will see no interest rate increases and that the short term strength in equities are ‘certain’ to continue? In addition, a hurdle in the trade talks between the US and China could shift investor sentiment from bullish to bearish.
Last but not least, the summit between the US and North Korea has ended early without any agreement between the two parties.
With the bullish trend appearing to be slowing fading, I am looking at two contrarian technical trading opportunities on the major US indices.
#1. S&P500 Futures
Key Technical Drivers:
– Candle structure weakening (momentum slowing on lower time frames)
– RSI nearing overbought levels
– Momentum Indicator pointing lower and RSI rolling over
Short/Sell S&P500 Futures at current level of 2788 pts (or higher)
Stop-loss: 2850 pts (or 2% trailing)
Take Profit Target: 2626 pts
Alternatively, traders could consider buying put options on the SPDR S&P 500 (SPY) ETF.
#2. Nasdaq 100 Futures
Key Technical Drivers:
– Price struggling to maintain trend line going back to February 2016.
– Relative Strength Index and Momentum indicators starting to roll over.
– Candle structure reflecting a slowdown in bullish momentum and a slow shift to bearish trend.
Short/Sell Nasdaq 100 Futures
Short/Sell Nasdaq 100 Futures at current level of 7089 (or higher)
Take Profit Target: 6700
Alternatively, traders could consider buying put options on the PowerShares QQQ Trust Series 1 ETF.
Please chat to the Unum Capital Trading Desk to take advantage of any trading opportunities.
All the best,
Unum Trading Desk Analyst
Tel: 011 384 2923