US SPX outlook, GBPUSD revisits the '80s

CMC Markets

By Chloe Edwards, Trade With Precision

With the domination of Covid-19 both in the news worldwide and, increasingly, in people’s day-to-day lives across the globe, it is hard to think of much else to write about in my blog post for today.

As someone who travels extensively to Asia (or did, until this year), and also being in one of the more “at risk” health categories, I have been following the developments regarding this new coronavirus outbreak more closely and for much longer than most of my peers.

Let’s take a look at some of the markets I am stalking, and where we may possibly take advantage of some trending price action. First, I’d like to emphasize that I am approaching all markets with an abundance of caution. It can be all too tempting for the novice trader to allow greed and the desire to make a quick profit to take over.

However, as a trader my livelihood does not depend on making a quick buck today in response to this once in a lifetime event. It depends on making consistent returns, in any market conditions, for the foreseeable future. The markets are currently extremely volatile, and trades may be prone to slippage, market gapping, and any number of other unforeseen outcomes. I am keeping my risk low.

With that said, let’s first take a look at the stock indices. As you are probably aware, the global stock markets have taken a beating, with the indices suffering greater losses than during the financial crisis in 2008. The US SPX500 has pushed down below the December 2018 low of 2,319.6, there could be a fair way further to go down to the next level of potential support at 2,100, as shown on the weekly chart above.

I will be looking for opportunities to swing trade short across all of the stock indices mainly on the 4 hour and 60 minute timeframes. But I will be bearing in mind any significant horizontal levels and avoiding entering any positions close to the open and closing times for these markets, due to the increased volatility and uncertainty. My usual technical rules will apply – looking for trends across timeframes, bearish moving average (MA) geometry, convergence of RSI and MACD indicators, pullbacks into the sell zone, and small-sized bearish candles for potential entry points.

Currently on the 4 hour chart we have divergence at the round number of 2,400 with the MACD and RSI indicators. As such I will be waiting for this divergence to play itself out and the downtrend to recommence before joining it as per my rules above.

Of particular interest is GBP/USD, which broke below the major support level of 1.2000 this week and has since traded to levels last seen in in the mid-1980s. On the 4 hour chart, I can see a downtrend in place, with price action forming lower lows and lower highs, and the 10, 20 50 and 200 MAs lined up and showing good bearish geometry.

Both the MACD and the RSI indicators are trending lower in a bearish fashion, which could confirm the trend momentum to the downside. The combination of this price action and the indicators suggests to me the potential for possible short swing trading opportunities. I am currently seeing a pullback into the MAs on this timeframe, coinciding with a retest of the 1.2000 level. I will then look for a small bearish bar to form around this area, and if this happens, I will use this as the basis for my short entry.

Stay safe and healthy, and happy trading.

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