With the massive bull run, mostly fueled by the artifical injection of money known as Quantitative Easing (QE), our stock market, as well as most global indices, enjoyed an amazing run up for the past few years, disturbed only by very few and minor corrections.
I think that the NASDAQ 100 has lead the way in this run and may be the first to provide us with clues that the market is running out of steam…..
While it would be almost silly to try and fight the global powers, i.e. world central banks who keep fueling the markets, I feel that the chance for a big move favors the downside. Don't get me wrong, the PROBABILITIES are in favor of a continued up trend, but chances are larger that if a big, sharp move happens, it will be a correction to the down side.
In my opinion, it would be wise to stay on the sidelines at this moment if you are a swing trader or longer term trader (next time I will touch base on some off my favorite DAY trading set ups for stock index futures).
Looking at the weekly NASDAQ 100 futures below I see a potential upside target of 4,407 based on some fibonacci extensions. I would be a little more excited about attacking the short side if we can break below the 4,226 level.
Weekly chart of NASDAQ 100 futures Dec. 2nd
Until then, don't let your "common sense" dictate your trading. And by that I mean: just because you may be thinking the economy is NOT doint that great, stock prices are outrageously inflated etc. etc. etc. does not mean that we won't continue up some more. Don't fight the tape. Prices are what they are for whatever reason – allow the market price and what the market perceives to be fair value show you the way, if and when it is time to attack the short side.
If you're still looking to either speculate on the downside or perhaps have some insurance for exposure on the equities side, my preferred approach would be to buy veritcal put spreads, where you buy an option closer to the money and sell an option further out of the money. You can read more about this strategy here.
If you need help with strategy mentioned above, visit our broker assist services.
Disclaimer – Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.