How to trade the stock market in Q1 2019
In this article we will look at past the recent market price action in Stock markets to help you develop a trading strategy for the beginning of the 2019. Many of us waited for the correction in the stock market and it finally came when we all were looking at the DXY-USD currency Index.
While it was consolidating between 95 and 98 levels, the S&P 500 was making a top and lost almost 20% from a 2950 rejection level. The long-term uptrend support (the only one left now) is 2300-2350 zone as it is displayed on a weekly chart below.
The same thing is happening with the DJIA (DOW JONES INDUSTRIAL) which also lost the 18.15% from the 27000 top. The only difference is the distance to the next, and only one left long-term uptrend support indicated on the weekly chart below.
If we take a look at the European stock market represented by its benchmark DAX we can see that they have already reversed long-term uptrend, DAX by breaking below the 11000 as it can be seen on the weekly chart below. The next possible downside hold can happen at 9800 level which is the long-term uptrend Pitchfork support line visible on the monthly chart.
Nikkei developed a falling channel. The instrument is still in the long-term uptrend as it is above the previously broken horizontal resistance line 19600 level and the ultimate support at 19000 level as it can be seen on the weekly chart below.
By looking at the long-term charts, stock markets are now indicating a risk off environment in the medium-term. This is because the long-term levels are still not triggered but we can expect a test of all the indicated levels for most of the stock Indices soon. When you are making a trading strategy for the stock market in beginning of the Q1 2019, you need to be aware of this key long-term levels and a possibility of a bounce from a current market levels, at least for the a retest of the recently broken strong horizontal downside resistances.
Take S&P 500 for example and a possible two trading strategies in the coming 2019 Q1 . The instrument could continue down from here by breaking below the 2400 to reach 2250-2300 zone for a serious, long-term uptrend reversal. To exploit the best this recent near-term downtrend the best strategy would be to wait for a pullback into the 2550-2600 zone and then to go with the short trade entries to catch a new 300 points swing down.
The same strategy should be applied to all the other indicated stock market Indices in the case we will have a pullback bounces. Overall top consolidation in Indices are over and this should be considered like this and a beginning of the long-term uptrend reversal. Taking the counter-trend short-term long trades will require close stop loss levels and up to 1:1.5 maximum risk to reward.
We have used the combination of the top-down trading analysis and the Andrews Pitchfork channels to analyze the price action and to develop a strategy.
Happy trading! (click on the chart to enlarge it)
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