As I mentioned last week, the S&P 500 is trading in a no-man’s land and it isn’t clear that the recent decline is over. Sure, stocks could recover here and there’s a risk of missing the move. But you can’t predict the future. The best you can do is stack the odds in your favor. And buying when the S&P 500 isn’t anywhere near a demand zone doesn’t achieve that objective.
What to do? Turn to other markets for opportunities. The foreign exchange markets show some compelling charts. This week I look at the euro’s value to the dollar. You can either buy the EUR/USD currency pair or FXE (Guggenheim CurrencyShares Euro Trust).
I like to things about the EURUSD weekly chart. One, the market is above the area in which most of the trading took place from late 2011 to September 2013. Paper profits for those who bought during that time are a motivation to hold on longer in hopes of bigger gains, removing a source of selling.
Two, price reverted to the mean (20-week simple moving average) from late December to mid-January and stabilized. This places the market at a low-risk buy point. In uptrends, price often resumes its upward course after short-term setbacks finish around the mean. Incorporating a trend-following a approach, you can stay in the position until the weekly mean turns down. A reasonable estimate of upside potential is chart resistance at 1.494.
Good trading, everyone.
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Read the latest issue of the TraderPlanet Journal here.
Schwab’s Kathy Jones highlights why investors shouldn’t be spooked by a rising rate environment here
Linda Raschke shares her top trading lessons learned about the markets
Brian Shannon outlines why bitcoin offers great trading opportunities
