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Looking across global indices from the US, Hong Kong and the EU, they all appear to be in very fragile areas.

Is there going to be a large drop soon?

The news of a meeting between China and Trump has given the market some relief, however it could have just papered over the large cracks in the global economy.


Technical Analysis

Dow Jones

The index is testing the broken ascending wedge formation. There also appears to be a head and shoulders formation signalling a potential break to the downside. If the head and shoulders pattern is correct, we could see a break to the 24600 level over the next couple of weeks.

Trade Set up – Entry 26800 – Stop loss 27050 – Take profit 1 – 26400 Take Profit 2 – 25800

S&P 500

This index is also re-testing the broken ascending wedge, a rejection from this level could see a significant drop. Similarly, there is also a head and shoulders formation on this index

Trade Set Up – Entry 2980 – Stop Loss 3000 – Take Profit – 2900

DAX

The German Index is also approaching a major resistance level at 12400, with a head and shoulders pattern forming. There is also a bearish divergence on the RSI. The direction of this index will depend largely on the ECBs actions on Thursday. Watch out for tomorrows post for the trade set up.

Hang Seng

The Hong Kong index is also at a crucial area re-testing the triangular formation at 26660. A rejection from this level could also signal further downside. No trade set up on this, we are just keeping a close eye.

As you can see numerous indices are in crucial areas. If they drop from this level it will form a lower high from the record highs the month previous. This could signal the start of a downward trend.

If you are trading the set ups, only pick 1 as you do not want to short 2 indices at the same time. Also ensure your stop loss does not go above the 2% risk of total equity.

The ECB interest rate decision on Thursday will give the indices some direction. Please keep an eye out for an additional post nearer the time.

Good luck!

5 Comments

  • Joe says:

    Awesome write up. Can I ask, does the Dow move the same direction as the US Dollar or the opposite. As I noticed when the Aussie dollar spiked against the US the Dow spoke as well

    • Tony Fernandez says:

      Thanks Joe! Generally speaking, when the local currency strengthens, their index will weaken. A stronger USD is in most cases bad for the US stock market. This is why the market craves interest rate reductions. When the FED cut rates, it devalues the USD and strengthens the Indices. The AUD generally pushes higher when the global sentiment turns positive, moving with the Dow and other indices in most cases.

      • Joe says:

        Thanks for that. I would have thought if the currency is weak so would their stocks.

        So with this trade on Dow Jones, with the interest rate looking like being cut do you think it will play against us?

        • Tony Fernandez says:

          No problem Joe. If the US hold rates next week, the indices will drop and so will the AUDUSD based on a stronger USD. If they cut by only 25basis points it could still be a similar result as the market is wanting a larger rate cut. If there is a 50 basis point cut the AUDUSD & Dow will both go up. Hope that helps

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