Spread trading strategies for the week ahead

Continuing our series of posts on spread trading strategies, today’s post is on strategies for the week ahead with the focus on the S&P 500 and also gold as these are 2 markets that have been important of late.

Last week saw a big counter trend rally in stocks, led by the S&P 500, which launched the rally from support at 1003.1. This rally was during a week of lighter volume, as it was a holiday in the US, with the markets being closed on Monday for Independence Day. This coming week may give a truer picture so it will be interesting to see how the markets react on Monday and Tuesday.

As we have said previously, the long term trend is down for the S&P 500, as it is in fact for all the stock indexes that we trade at LS Trader with the exception of the German Dax, which has continued to hold up much better than the other indexes. Therefore, last week’s rally is against the longer term trend and for that reason is unlikely to develop in to a big uptrend as markets rarely drop sharply and then turn around and go straight back up. Therefore whichever spread trading strategies are to be applied, the bias should be to the short side.

In spite of last week’s rally, the short term trend according to our indicators is still down for the S&P 500 and last Friday’s close is pretty much at a short term resistance level around1070. This fell just a few points short of the highs from the previous week, so we don’t have a bullish engulfing pattern. However, we may still see a continuation higher up towards the prior highs at 1129 but more likely will see the market move lower again and at some point in the not too distant future test support at the psychological 1000 level. The long term trend remains down and we still look for lower levels on the S&P 500 this summer.

The other market that we are looking at today is Gold. Gold ended the week very marginally higher after the steep sell off from the previous week and formed a bull harami pattern on the weekly charts. The bull harami pattern indicates that sellers are losing their breath and that there is a fairly even balance between buyers and sellers. This suggests that we may move higher this week in the direction of the prevailing trend, especially if we get back over $1215 early in the week. The long term trend is still up in Gold so spread trading strategies should be from the long side if any for now

Good trading

Phil Seaton

 

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