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Reflecting on opportunities in the US markets versus the Australian markets in recent times reveals that the Australian equity space – in which many start their trading careers - has been lacklustre at best and downright painful at worst.
I want to echo recent comments by my colleagues in articles and classes about how committing time and effort to the routine of analysing US equities and trading them via CFDs has been a rewarding exercise. I am not suggesting we abandon the Australian space altogether but it makes sense to look further afield for easier trading opportunities. Aussie equities are experiencing a cycle that is producing a flat and volatile trend. If you look at the ASX 200 Chart XJO, you will see the range is not much to write home about.
Chart 1 illustrates the ‘channel’ between 4025 and 4120 that has been created. Using the last major range down from 2011 (marked A to B), we see that a 100% repeat would place us at 3934 or approximately another 100 points down from where we are now. This is possible but current volatility is making it hard to pick the moves.
Chart 1 – ASX 200 Daily Bar Chart
click chart to enlarge
Chart 2 shows that the S&P 500 has trended much more reliably than the local market. While stocks like Facebook have gained a lot of attention for all the wrong reasons, the overall delivery of both ABC longs and shorts has been kinder and more reliable in the US markets.
Chart 2 – S&P 500
click chart to enlarge
If you are considering trading US CFD’s, you must first ascertain whether your broker can handle it, what sort of orders they take and the costs involved. (As an aside, these costs have reduced dramatically over recent years). The main hurdle is getting the right mindset but for all intents and purposes the differences are minimal.
Let’s consider the recent example of US stock Intel (INTC), which is listed on the NASDAQ. At the recent Interactive Trading Workshop in Sydney, we saw this stock produce an ABC long. (It’s great to see students identifying examples like this in the ‘Finding Trades’ sessions).
The ABC that appeared is illustrated in Chart 3. After spending some time dissecting this stock I got very excited about it as a great Gann market. (As an exercise, I suggest you check out just how many pieces of supporting evidence there were for Point A in both price and time).
Chart 3 – Intel Daily Bar Chart
click chart to enlarge
While the ABC trade was invalidated over the next few sessions as the market fell, it became a great double bottom trade with the second leg of the trade just false breaking Point A. There was also the issue of the entry limit being just outside 33%, but using some advanced entries and trade management skills you could have overcome this.
Chart 4 – Intel Daily Bar Chart
click chart to enlarge
Entry was achieved during the following session and, as you can see in Chart 5, a runaway up-move ensued.
Chart 5 – Intel Daily Bar Chart
click chart to enlarge
The point of this discussion is that there are great opportunities to be found if you challenge yourself to look further afield. To the groups who identified this case study at the ITW - pat yourselves on the back, especially if you traded it into profit.
Good Trading
Aaron Lynch
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