Avoid Getting Whipsawed by Range-bound, Choppy Trading!
The closely watched Federal Open Market Committee (FOMC) Interest Rate decision came and went causing a lot of volatility but no real sustainable move in either direction!
The S&P 500 Index essentially closed right in the middle of the trading range that our medium term models forecast, published Tuesday night, which stated: “For Wednesday, the medium term models indicate a broad range of 2835-2795 band as the pivot for any trades (the range is widened to accommodate potential volatility surrounding the FOMC interest rate decision announcement)”. (click here to read/verify this claim).
Model Biases/Outlook:
On Wednesday, the index reached as high as 2825.83 – just under one point above the upper bound mentioned by our models – but could not stay above the 2825 level even for five minutes! Consequently, our models indicate the S&P 500 Index as being stuck in an “indeterminate” state, with no clear bias in either direction.
Models indicate weakness in the recent bullish bias, but no clear bearish bias is seen until all the way below 2785. The index has to register a daily close above 2830 for the models to indicate a bullish bias again.
A Brief Trace Back of The Current Bias/Outlook
After 14 consecutive days of bearish bias, our models have negated the bearish bias on last Friday, 07/06/18 when it closed at 2759.82! Since then, our models have been consistently forecasting bullish strength and are yet to flash any concerns about any bears in sight, until Friday, 07/27.
After reiterating the bullish momentum for 21 consecutive days, our models now abandoned the bullish bias with the action on Friday, but have NOT replaced it with bearish bias yet.
Trading Plans for THU, 08/02:
Medium-term/long-term Investors
Medium term models indicate an “indeterminate” state for the S&P 500 Index and are currently not biased in either direction but indicate a choppy, range-bound trading.
For Thursday, the medium term models indicate a broad range of 2835-2795 band as the pivot for any trades (the range is widened to accommodate the continued volatility surrounding the FOMC interest rate decision announced today, Wednesday and the upcoming Non-Farm Payrolls coming up on Friday).
Above 2835, models indicate going long with a tight trailing stop (in the range of 10 points) and below 2795 is for going short with a tight trailing stop (in the range of 10 points). To avoid getting caught up in whipsaws and overtrading, wait for a confirmation of the breakout off these levels on at least a 15/30/60 minute bar, depending on your trading style and risk profile.
(click here to read on the conceptual workings of a trailing-stop)
Aggressive, Short-term, Intraday, or Professional Traders
For Thursday’s regular session, aggressive intraday models indicate using the 2825-2810 as the pivot band to place trades off of.
Above 2825, models would go long with tight trailing stop (about 6 points) and below 2810, models would go short with a tight trailing stop (about 6 points). To avoid getting caught up in whipsaws and overtrading, wait for a confirmation of the breakout off these levels on at least a 1/5/15 minute bar, depending on your trading style and risk profile.
(click here to read on the conceptual workings of a trailing-stop)
IMPORTANT RISK DISCLOSURES AND NOTICES – READ CAREFULLY:
(i) This article contains personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.
(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.
(iii) Risk Warning: Investing, trading in S&P 500 Index – spot, futures, or options or in any other synthetic form – or its component stocks carries inherent risk of loss. Trading in leveraged instruments such as futures carries much higher risk of significant losses and you may lose more than you invested in them. Carefully consider your individual financial situation and investment objectives before investing in any financial instruments. If you are not a professional trader, consult a professional investment advisor before making your investment decisions.
(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.
(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.
(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.