A rarely noticed chart pattern has formed on the Weekly S&P 500 Index called the Megaphone or Broadening Triangle, among other names. This pattern formation isn't the usual consolidation and continuation we are accustomed to, this one only happens at the end of long-term market rally's. This pattern depicts a period of great uncertainty where markets reach new highs followed by lower lows in an alternating sequence finally resulting in a rapid significant decline. Most traders would rather short-sell this trade on an intraday basis or 'trend-trading', remember this will lead to missing potentially large overnight gaps lower. My main concern is that the US Federal Reserve or Government, start directly buying shares in such a crisis scenario, especially before the US elections. Even though it would be rather unlikely, the U.S. FED, or U.S. Treasury do this, I would not like to bet against them as the odds are not in my favor. Never let a single trade make or break your performance.
Trade active:
It remains an attractive level to stay short. I would only reconsider this trade when the index break higher (above previous All-Time-High). At which point, I am certain that the fundamentals would have changed (see my main concern above).
An inaccurate tenor for such a long-term trade may extend around 8 weeks, so in the meantime I will place shorter period negative trend trading strategies to possibly add onto the main position.
An inaccurate tenor for such a long-term trade may extend around 8 weeks, so in the meantime I will place shorter period negative trend trading strategies to possibly add onto the main position.
Trade active:
The 3600 level is close (about 50 to 100 pts away) and will be my stop-loss on this trade in the near-term. I have added an additional 25% more to the core position, and I am now closely watching the index. The double top on the weekly chart is a good indicator to support going short.
The potential profit from such a trade when coupled with a VIX option at around 18, definitely makes it worth the risk for me. We are nearing the stop-loss and the markets are more quiet now.
The potential profit from such a trade when coupled with a VIX option at around 18, definitely makes it worth the risk for me. We are nearing the stop-loss and the markets are more quiet now.
Trade active:
A break below 3200 would signal that the market has reversed into a down-trend. This is likely in the coming week. Once below 3200, our target to close the first 50% will be around the 3000 levels for a 15% return. The following target will be closer to 2700 or about 25% below the yearly or all time high.