CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
☰
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Open account
✖

Index in focus Is this the end of buy the dip for the SP 500

Article By: ,  Head of Market Research
September 16, 2021 1:51 PM

Index in focus: Is this the end of “buy the dip” for the S&P 500?

If the last year has taught index investors anything, it’s that “buy the dip” is absolutely infallible advice.

Of course, once any strategy in complex adaptive systems like markets becomes infallible, it’s often a sign that its about to stop working.

This brings us to the S&P 500, which has been one of the clearest “up and to the right” charts on the planet. The widely-followed US index has gone more than 10 months without seeing even a -5% pullback (vs. the historical average of roughly 3 per year).

See our guide to trading the S&P 500 here!

More actionably for technically-inclined traders, the S&P 500 has immediately found support and rallied to new highs every time it’s pulled back to its 50-day exponential moving average (EMA) over the last 10 months. Likewise, the 14-day RSI indicator has repeatedly bottomed out at the 40 level over that period.

As we go to press, the index is once again approaching its 50-day EMA and the RSI is hovering just above 40. Will we see another bounce, or will the “infallible” buy the dip mentality finally fail?


Source: Tradingview, StoneX

The short answer is: We don’t know. And no one does.

…But that doesn’t mean there isn’t an actionable trade opportunity. For example, bullishly-inclined traders could consider buy opportunities near current levels with a tight stop below the 50-day EMA, targeting fresh record highs in the index for a strong risk-reward ratio.

Conversely, rather than guessing that the reliable pattern we’ve seen over the last 10 months will definitively end this time, bearish-leaning readers could set a stop sell order below the 50-day EMA with a stop back above it and a target at 4300 or lower to be prepared if this finally is the end of the “buy the dip” pattern without taking on unnecessary risk.

Either way, the technical setup in the one of the world’s most popular indices points to a potential swing trading opportunity emerging in the coming week or so.

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    • Open an account in the UK
    • Open an account in Australia
    • Open an account in Singapore

  2. Search for the company you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

© City Index 2024