CHIEF TECHNICAL ANALYST
Q. Dear Sandy, should I look at either indices or commodities?
A. Although the focus has been on the recent rallies in stock indices many traders may have missed out on opportunities in other areas. From the lows, commodities such as gold have soared to new highs. We have also seen substantial moves in sugar, soybeans and now also crude oil, which has started its ascent towards the $100 level again.
As we approach year-end, the markets tend to become more volatile. However, there is the calm-before-the-storm effect at the end of the year as the holiday season kicks in. After that, there are often further moves – both bullish and bearish – which is exactly what a trader is looking for.
Q. What should I look for to exit long positions?
A. There are various techniques that one could use to exit a long position. If a trader has had a long position and benefited from the recent FTSE rally, then the simplest way is to place a stop order at a key support level.
For example, you may want to note the previous week’s low and place your stop here. If the market takes that low out then that would close your position. Alternatively, a technical indicator such as a moving average is a good one to keep an eye on. The popular 20-day moving average is often observed by traders.
Once again, if the market closes below the 20-day moving average then this can also be used as a trigger to both close and even open a short position with the expectation of a decline.
Q. Dear Sandy, will indices and commodities continue their run as we head towards the end of the year?
A. That is a difficult question to answer. Everybody likes a prediction and trying to predict markets is a futile exercise. It would be useful to keep tight stops on any open positions to lock in gains. We don’t want a profit to turn into a loss.
If the current bullish trend continues to show strength, then yes, commodities and indices could very well head higher. One should expect bumps along the way with sudden pullbacks.
But if we start to see sharp reversals which are coupled with high volumes, then it may be an early warning that a short-term top in the market could be in place. But for now, it seems that the markets are still looking positive.
Learn more about technical analysis with Sandy at his free City Index seminars.