By The Disciplined Trader
The stock markets have continued to grind higher on the back of positive earnings and expectations of further stimulus in the face of an ever darkening global economic environment. The cocktail driving the markets may not last; recent reports from the IMF have painted a particularly bearish macro picture indicating that their mission to foster growth has failed. With the recovery stalling, growth and spending will subside, leaving analysts who monitor these factors no choice but to downgrade earnings for the next quarter. Even with Central Bank intervention the forces of a global slowdown are too strong for the rally momentum to continue further - so upside potential seems limited from here.
According to Elliot Wave analysis the stock markets are about to resume their long-term downtrends, I’m looking to trade this potential opportunity and go short in the Euro or the FTSE 100. The FTSE has bounced higher with the market rally but I’m waiting for an overbought signal on the RSI 2-hourly chart to confirm my next entry level.
EUR/USD is in an established downtrend (see post), trading trends often offers the best opportunities and my entry levels must be timed to meet my strict disciplined requirements for my system to profit. Hence I would like to see a strong rally in the Euro confirming an overbought indication on the RSI oscillator.
As yet neither the Euro nor the FTSE are overbought on the 2-hourly or daily charts, so I’m waiting for further upside to confirm a trade, the FTSE is currently 5670 and I would anticipate an overbought reading to occur around 5750.
In the US the rally has been stronger relative to Europe. The S&P 500 is nearing overbought levels and the RSI is just below 70 on the 2-hourly chart. Any rally above the recent high of 1380 would qualify as a short.
The Disciplined Trader is an average guy who has little fundamental knowledge of the financial markets, yet he consistently makes money trading. He simply applies the basic rules of trading discussed in bettertrader.co.uk and executes his trading techniques applying great discipline.