Back on October 17th, we found reasons for an immediate bottom (which turned out to be an accurate assessment). And on October 19th, we identified some levels in common indexes that would allow us to hold long positions. Those levels have been recaptured. Now what? Our head is on a swivel, identifying if/then scenarios in an incremental risk environment. There is still overhead resistance at downward trend lines off the highs from September. We’d like to see new highs made, and kept. Anything below the levels identified on the 19th, and we are out of our long positions. Yes, tomorrow is FOMC day. Don’t trade what you think the market should do. FOMC days are notoriously counter intuitive (what ever the market does tomorrow, be ready for the opposite to take place in the following days). Trade what you see. Price holds the final say.
Back on June 23rd, we identified the opportunity to short Russian equities with very little risk and very good reward. It paid off. Russian equities (using RSX as our proxy in our post) sold off after hitting (and failing to breakout from) a downward trend line that dates back to 2007. This downward trend line, along with a common Fibonacci retracement ratio, provided stiff resistance and a well defined risk/reward scenario. -19.6% later, we’ve reached our 2nd target of 21.00. Accordingly, we’ve closed our short trade and will re-evaluate Russian equities for further weakness. We would consider going long Russia here, but the breakdown in oil has us investigating this thesis more thoroughly. We also could consider re-entering a short position in Russia if there is more downside follow through past 21.00. Quite frankly, if that latter scenario unfolds, there may be bigger sell-offs happening across many major financial markets.
This trade is specifically why 360 Investment Research uses technical analysis. We can identify robust risk/reward opportunities in any market across the entire investment universe.