DJ30 to jump or not to jump?

What kind of plan for DJ30 swing traders?

Traders, by now the results are clear. You have either short and made money or you were a spectator. The ‘meat’ of this move has already been eaten and the leftovers are bones only. Low on marginal utility but feels sad to throw away. How?

Some facts:

  1. In 2 weeks, DJ30 has covered 70% of the entire 2014 range.
  2. In fact 2014 low is visibly a support. This is a 52-week low that stock markets like to watch.
  3. The trend-following direction is still short but this will be a huge danger. Why?
  4. Because volatility has expanded and daily intraday movement is hundreds of points (in fact 4500 points on Monday after several round trips). Are you comfortable with this?
  5. Unless the current low is beaten, the index will not achieve new ground.
  6. Your short may succeed or you may be overwhelmed by short covering, bargain hunters.

No. In fact if you have not benefitted from this ride, you have missed the boat. The fact that China cut rates yesterday means the Central Banks (China is not the first and won’t be the last) are ready to throw the kitchen sink and the baby to rescue the stock market.

DJ30 with Fib-R levels

It is never just about Fib-R levels, it is also about whether Fib-R levels have confluence with other levels

 

Action plan

There are 2 things to do:

  1. Change to trading mode. Be quick on your feet. Look at lower time frames. Tighten stop losses, take profit regularly and don’t carry position overnight unless you have a big stop loss.
  2. Swing traders wait for retracement. If the trend is strong, we will see a resistance build up at 23.6 or 38.2% Fib-R retracement. But the lucky number is 61.8. Observe price action. Act only when price action is convincing. Don’t use limit orders.

 

Warning! FOMC coming

September FOMC is coming. You might as well flip a coin to guess the outcome of rate hikes. Be prepared to see volatility explode. Plan carefully. Preserve your trading capital for clear setups that you understand – not on the toss of a coin.

Surprise surprise. I don’t like surprises – especially if they can make me lose money. As far as I can remember FOMC meetings were always Tuesdays and Wednesdays (technically Thursday since FOMC statement comes after Wednesday midnight; my timezone here is GMT+8). This September FOMC we are SUPPOSED to have a high likelihood of the first rate hike in years, according to some and the FOMC changes the day? Why can’t stick to tradition?

FOMC statement dates 2014 - 15

FOMC statement dates 2014 – 15 (GMT + 8)

In the meantime, we share 2 stories:

  1. This was what the cash index did the last few crises. If history repeats, can we learn something from these charts and make a plan for it? https://www.terraseeds.com/blog/2015/08/part-history-will-djia-repeat/
  2. Betting on FOMC is dangerous. Unless you do not put in a stop loss and you are prepared for infinite pain, don’t do it. Even if you are ultimately right, you may be wrong. https://www.terraseeds.com/blog/2015/03/currency-bomb-eurusd-pulls-back-400-pips-3-hours/
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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