Weekly game plan 31 May 2020

We assume that reading another bearish opinion is probably getting a little old by now, and yet, here we are, still bearish. Perhaps our bias has gotten so strong that we refuse to see what is directly in front of us? It is just starting to feel like madness that equity markets keep trading higher while so many things are pointing to a difficult period ahead for the global economy. Perhaps that market is trading higher on Robinhood accounts fueled by free money from the U.S. government, or short covering leading to massive buying volume as bearish traders get caught with their hands in the cookie jar? From a fundamental perspective, it does not make sense to us how world markets can be trading towards the highs while the world is still in the process of collapsing. But… the market can stay irrational longer than you can stay solvent. Or, the market is always right and trying to impose your views on it is madness. Either way, we’re still bearish and still, seemingly, wrong.

Gold

Gold is still holding in the consolidation it has been in for the last few weeks. Our view is that the probabilistic outcome is for a break higher out of the consolidation, although there are no triggers for us to initiate any trades yet.

ALSI

The ALSI is still holding under the resistance level with growing bearish momentum. We believe that this now offers a very good risk-reward short trade.

S&P500

The SPX has poked its head above the resistance zone that we have been watching over the last few weeks. Time will now tell whether or not this is a fake break out of the real thing. Although every bit of us is screaming that this is a nonsensical situation and the market ‘must come down’, we do know that not being able to acknowledge what the market is clearly saying is what leads to bad trades. This does not mean that we are going to chase a long position in the coming week. Our bias is still toward the short side of the market, but we acknowledge that we’ve been calling it wrong for the last two weeks.

Brent Crude Oil

As it turns out, there are some things we are bullish on (read our outlook on the oil market in Finweek). Brent Crude Oil seems to have formed an inverse head and shoulders formation, backed with the fundamental view that we have, we like it for a good long trade. Immediate targets are the gap close around $45.

Imperial Holdings

The IPL short we looked at last week seems to be working really well so far. Our expectation is that the stock will likely trade down to test the recent lows.

*Please note that these trade ideas form part of a larger weekly plan and the value of financial products can increase as well as decrease over time, depending on the value of the underlying securities and market conditions. The risk of loss arising from trading in Contracts for Difference can be substantial. You should carefully consider whether such investments are suitable for you in the light of your circumstances and financial resources.

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