All of the stock indexes have now made swing lows today marketing day 1 of a new trading cycle. This cycle should run the next 35-45 days.
Their are a few catalysts to move us into this new daily cycle, the $1.9 trillion stimulus package passed through the Senate this weekend and will have no problem getting passed in the House tomorrow, the fed continues to promise easy monetary policy to speed economic recovery, and the latest employment situation report showed that nonfarm payroll rose by nearly twice as much as projected last month pointing to the economy reopening.
We usually use the S&P for marking cycles in stocks but not this time. This decline was very mild in all the indexes except for the NASDAQ. In fact, you really could not call this anything more than a daily cycle decline if not for how deeply the NASDAQ sold off. One of the things we look for to mark an intermediate cycle decline is failed daily cycle which happens when the price drops below the previous cycle low. You can see on this S&P chart that it did not happen.
The selloff in tech stocks however was severe enough to give the NASDAQ a failed daily cycle. Because the NASDAQ had a failed daily cycle at week 23, which is in the timing band for an intermediate cycle low, we are going to say stocks have begun a new intermediate cycle.
Wednesday and Thursday's panic sell off was followed by a buying frenzy on Friday. Not easy to see the colors on this chart but we got follow through with the swings this evening.
The volatility in all the stock indexes has made it very difficult for us to hold onto our positions. For this reason, we are recommending that you take the volatility down by trading smaller positions with looser stops. We are also recommending that you keep your stock index trading in the Russell 2000. The margin requirements are also much lower, yet you will get more bang for the buck than trading multiple micro mini contracts.
We recommend buying the RTY at 2200 with a stop at 2150. You are risking 50 points (50 X $50 = $2500). This cycle was so mild, my expectation will be to see the RTY take out the previous cycle top and advance to $2460 which would be at a Fibonacci extension level of 161.8% That would give this trade a 260 point gain X $50 or $13,000 for a better than a 5 to 1 risk reward ratio on the trade. By avoiding the NASDAQ I think it should be easier to hold onto our position. Margin on a RTY is $7,150.
Platinum certainly has its scary moments, but it is not manipulated in the way that silver is. Silver will have its day but it has been incredibly frustrating to trade. The industrial metals have out performed the precious metals over the past year and Platinum gives you exposure in both markets really. It also has the added benefit of a much smaller margin requirement of only $4,840 vs $18,150 for silver.
Again, I believe any of the stock index or metals trades will work now, but I believe the Russell 2000 and Platinum will be the easiest trades to hold in this volatile time.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.