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
✖

SP500 fade the bounce or buy the dip

February 24, 2020 10:40 PM

A rough start to the week for global equities as they responded to the news over the weekend that despite China’s best efforts to contain, there had been a worrying increase in Covid-19 cases outside of China.

By the end of the session, the S&P 500 had erased the final remnants of its +5% year to date gains. And in the process, it answered the question we posed last Friday as to whether the S&P 500 could hold above the key 3330 support level to steady nervous markets.

In our recent articles and videos, we have alluded to the risks of a pullback in equities. Although given where markets were as news of the virus spread, it wasn’t a particularly brave call. Returning to Friday's article on the S&P 500 for a moment we said

“a break and close below 3330 would signal a retracement back to 3200 was underway.”

Similar to the USDPY move last week, the S&P 500 all but reached our 3200 target in super quick time and meeting our minimum objective. The tricky part for traders is what comes next? Specifically, should the dip be bought in anticipation of the uptrend returning or should bounces be sold?

As pointed out by the excellent Charlie Bilello on Twitter, the correction over the past few days is the S&P 500’s 26th fall of 5% or greater since the GFC March 2009 low, before the uptrend has resumed. The dispersion of the falls is varied, while most have been between 5% and 10% there have been two greater than +20%. Hence there are risks in assuming the current decline is over.

In the short term, I would expect sellers to emerge and cap rallies on bounces towards the breakdown level 3300/3320.

In the medium term, I will be closely watching the band of support between 3210 and 3180 for signs that the S&P 500 is attempting to put in a place a base. Keeping in mind, should the S&P 500 break/close much below 3180 it would open the way for the decline to extend towards the 200 day moving average 3070/3050 area.

Source Tradingview. The figures stated areas of the 25th of February 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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