BT INVEST

A Personal Finance and Investment Arm of The Business Times
MARKET TODAY:

Archive

US Markets Sharp Decline but Creates a Trading Opportunity by Sandy

The US Government Shutdown has created chaos in the financial markets, and uncertainty amongst investors but for traders this has provided excellent trading opportunities.

Technical Traders lavish volatility and the last few weeks have delivered hungry screen watchers and trend trader’s fruitful opportunities. Whilst uncertainty continues around the debt crisis we can look for a potential opportunity going into next week.

Having started the year on a strong foot at 13104 the Dow Jones Index has rallied from January 2013 – May 2013 without looking back. With a high of 15542 and gaining +18.6% which is healthy by any standards the index then pulled back to 14551 losing -6.3% over 22 trading days.

Another push higher the Dow Jones then reached 15658 over 28 days followed by a secondary pullback to 14765 giving back -5.7%

Finally a third peak at 15709 in September led the way lower for the index to create a potential Triple Top Pattern. But rather than predict a top traders will need to wait and see a break of the August 28th low of 14760 before turning fully bearish.

Currently the index has reached a Fibonacci Support level of 14963 and at the close of this week’s trading we would need to see the index hold above this level. If a failure to hold the 14963 level pulls the Dow Jones lower, we would look towards 14868 as the next support level.

An opportunity now exists for traders to capture a move higher but with caution. If we see the index trade and close above 15130 then a rally could lift the market higher into next week towards the end of the week or as early as Monday 21st before another pullback commences.

If we turn our attention to an Intermediate term Weekly chart then the picture becomes clearer.

Immediately we observe that at the high of 15709 led to a classic Candlestick Pattern named a Shooting Star. Also we then see that a Bearish Engulfing pattern had also emerged, which created a great opportunity to establish a Short position to see a move lower.

At all times using simple price and pattern analysis is essential. Clean charts can reveal clear trading opportunities and rather than cluttering a chart with multiple technical indicators, simple often works best. This is not to say that technical indicators are of no use but rather it may be better to use less to see more.

Given that we see the Intermediate Term chart remains Bearish, it would require a Bullish Pattern to emerge in next weeks trading to provide more confidence.

The longer term charts are more important to determine trend direction whilst the shorter term charts can be used for Entry and Exit with the main trend.

Taking the current position we would then only look to take Short positions on any rallies unless the Weekly chart provides a Bullish confirmation or if the index reaches a Resistance level on the upside either using Price models such as Fibonacci or Elliott Wave on lower time frames.

Whilst the USA face a challenging situation with their debt levels this should keep volatility alive for the near term and provide good short term trading opportunities for the weeks ahead.

Remember to use trade and risk management to protect your positions and equity balance.

Have a safe trading week.

Sandy Jadeja
Sandy Jadeja

Sandy Jadeja
Chief Market Strategist
www.mastertradingstrategies.com 

Sandy Jadeja is the Chief Market Strategist for www.mastertradingstrategies.com He has been involved with the financial markets for over 24 years and is a respected and widely recognized analyst and trainer in technical analysis as well as being voted in the top 50 most influential traders.

Currently, he is featured as a weekly guest analyst on CNBC's Closing-Bell and Squawk Box. Mr. Jadeja also created and provided an exclusive educational course on Technical Analysis for CNBC Europe’s Strictly Money program which was the first ever International educational TV program on Technical Analysis.

Having established a strong reputation as an articulate presenter and trading mentor on the subjects of trading strategies and psychology, Mr. Jadeja attracts large crowds of traders and investors worldwide. He has participated in and Chaired professional panels of expertise related to trading and investing and he was also elected exclusively from the UK in 2005 to speak on technical analysis for the GCC Economic Forum in Dubai. He has also spoken at Oxford University as a keynote guest on Technical Analysis. Mr. Jadeja currently shares his trading insights, strategies, and provides unique educational workshops focusing on safer trading, risk control and money management through www.mastertradingstrategies.com