S&P 500 - What a trader should do up here?
- 6 Months by Dipak Shodhan
- Market Comment
The market can be described as suspended in air at record highs. What should a trader do when volatility index is stuck in the single digits (VIX currently at 9.35) and the market grinds its way to new record high closes? As an investor you would be happy, but not if you’re looking to catch trades.
In spite of everything seeming to be ‘All-OK’, it’s no time to become complacent, but it’s also not a great time to be a hero and try and find a top. The grind can continue to chew up the shorts for an extended period while only profiting longs. It can also result in a quick downdraft could amount to a shakeup, resulting in an opportunity for buyers to step in at better prices, or it could kick off a correction. The fact this price action comes amid a summer trading environment makes the current state that much harder.
What should a trader do?
For those riding on existing longs from lower levels, having one eye on the exit (trailing stop) is a sensible approach. For those waiting to enter the market long, it may be a good idea to see if we can get a shake up first before establishing new long positions. A small down-move will not only ease short-term overbought conditions but also provide better risk/reward entries. One spot to look to is a retest of the June high at 2452, and should that fail then the lower trend line at 2429, running up from the May low would be another point of interest. If you’re thinking the market is short, you might be right, but until we see a spike-high indicating exhaustion or a decline and failed rally it’s a difficult proposition.