Short Trades Limp Out With Whipsawing Indices The Main Risk
Declan Fallon | Jan 17, 2019 12:10AM ET
Tuesday's swing trade will have stopped out the aggressive short trades at the narrow doji, where the doji range was used as a stop. Shorts using the 50-day MA as a stop will still have a little room left to play with. Those looking for a new shorting opportunity may use yesterday's doji as the entry trigger; shorting loss of doji low with stop on break of doji high (or a long trade on the reverse break).
The aforementioned trade looks clearest on the S&P where it edged above resistance but not enough to break beyond the 50-day MA; I have marked a second (short) entry signal but if it closes above the 50-day MA then the last chance saloon for these trades will be done.
It's a similar picture for the Dow Industrials
Somewhat ironically, the Semiconductors might have the best shorting play; yesterday we had a close near the low of the day after peaking last week. The index is above the 50-day MA but it's not looking like it will stay there much longer. There is an early 'sell' trigger in CCI along with a similar 'sell' trigger in relative performance.
The weakness in Semiconductors runs somewhat contrary to the more bullish action in the NASDAQ and NASDAQ 100. Both indices enjoyed a solid Tuesday, with the NASDAQ 100 closing with a small doji on its 50-day MA (a possible new shorting opportunity).
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The NASDAQ managed to do a little better by closing above the 50-day MA although it finished with a doji too. The initial short will have been stopped out and yesterday may offer another, although the Semiconductor Index or NASDAQ 100 are perhaps better opportunities in this regard.
The Russell 2000 edged over the 50-day MA yesterday, but hasn't yet breached resistance. Some shorts will have covered, other bulls will have bought yesterday's advance. If we get past horizontal resistance then bulls might get another decent leg higher.
For today, shorts can keep at the S&P, Dow, Semiconductor Index and perhaps the NASDAQ 100. Longs may find the Russell 2000 more to their liking. Whipsaw continues to be the main risk. Investors can keep things cool until the next leg down.
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