Stock markets fell on Wednesday led by consumer services, industrials, and healthcare. The S&P 500 dropped by -0.40% while the Dow Jones Industrial Average fell -0.44% and the Nasdaq declined -0.42%.

stocks update chart

Among the losers, Macerich Co. lost -6.64% to close below $79, while American Airlines fell -4.4% and NRG Energy lost just over -6%. Walmart stores lost -1.87% while there were losses for semiconductor shares Intel and 3M.

There were gainers too, with Windstream Corp, climbing 5%. Meanwhile, Kraft Foods Group continued last week’s run, advancing by 4.11$ to settle above $90.

S&P 500 Trade

With stocks down from their recent highs and with the Easter holiday approaching there may be some merit in going long US stocks Thursday morning and closing them by the end of the day.

The team at Quantpedia show a useful trading strategy indicating that stock markets usually head higher just before a public holiday. This is a strategy that I have found works well roughly 50%-60% of the time. With markets off their highs I think the pattern could be repeated this week.

S&P 500 Technicals

This trade could feasibly be entered into any of the main stock market indexes; Dow Jones Industrial Average, Nasdaq, S&P 500, even the FTSE 100. I would avoid the DAX though as I personally believe that this market is approaching a very dangerous state. As a result I have bought some out-of-the-money put options on DAX.

Looking at the 2-hour chart, price action is fairly choppy but we can see some support around the 2,044 level, indicated by the horizontal support line. Stops can therefore be placed somewhere below 2,040 to be safe.

sp 500 chart

Ideally, we would like to see validation of the upward trend line from the 1 April but as yet, the trend line is not reinforced and until that’s validated, this trade should be treated as a medium-risk trade.

The daily chart, however, tells a different story and suggests that the upward trend is in place, with the market price now moving close to the upward slope. This gives us a possible low-risk entry – on the daily chart at least.

sp500 daily chart

And this setup also appears in DJIA where the upward trend line from 2 Feb points to at least a short term upward move.

dow jones chart

Conclusion

Evidence shows markets usually head higher going into a public holiday, and with favourable technical setups for the S&P 500 and Dow, I feel comfortable initiating an entry into the S&P 500 future this morning, to be closed at the end of the day. Particularly as markets are coming off the back of a poor few days of trading.

I would prefer to close trades at the end of the day rather than look for profit targets in this instance though I will evaluate the position in the last hour of trading if still in profit.

This is not a ‘sure thing’ but a bet based on judgement and historical evidence. If you make this trade, do not bet any more than you can afford to lose.

 


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