Swinging EU, Trending SPY, Trading Days

In a prior posting I’d talked about how these kinds of news driven events (BrExit) tend to develop over 2 to 3 days, then rebound.

With that kind of long term ‘set up’, I’d wait before doing any bargain hunting. On a trade basis, there is usually a 3 day cycle. Sometimes only two. Mid-morning Monday ought to be a nice time to reevaluate on a rebound trade (i.e. an oversold buy for a one or two day holding period bounce). But that secular high argues for a longer term reversal to a downtrend, BREXIT or No.

Things were evolving fast and I didn’t have enough time to do any in depth analysis or charting. Hopefully “Monday” or the “3 day cycle. Sometimes only two.” was enough.

Here’s the chart for SPY now. ( I tend to trade SPY as a fast trade as it is more orderly. For the UK, the only vehicle I was familiar with was an EFT Exchange Traded Fund, the EWU, and it has tracking and timing issues (i.e. it trades USA time not UK time and moves depending on supply / demand for the ETF as much as the underlaying FTSE index during stress events.)

But I’m going to show both charts.

SPY vs EU ETFs on a 6 month daily chart during a swing trade event

The overall context is a rounding top. Price has risen for 6 months, then basically gone flat. Normally I’m out then. But news drove things a bit nutty on Friday, followed by more on Monday. Now the SMA lines were merging in a ‘topping weave’ and on a dip out of a top, I sell when price returns to the SMA stack from below. It has done that. Could it go up tomorrow too? Sure! But unlikely to go more than a % or so higher and a good risk of “up at noon down into the close”. With small positions I just sell all at the moment. If a larger position or if unsure, legging out is fine. Half today, half tomorrow. Or just put a stop loss behind things (though a gap down at the open can be a pill…)

Note that in this case, the indicators are saying “be out, but get ready to buy”, day tick charts often lag on fast spike news event trades. That is why “trend following” is not a good idea for day trades and swing trades (when I move to ‘faster charts’ like the 5 or 10 day hourly of 15 minute ticks) It also makes this a ‘counter trend trade’ where speed is more important. Any error and holding too long is likely to have you caught in a new down draft.

Note that MACD is below zero and DMI is still red on top. Both saying ‘down for now’, which is where things have been. Each is likely to turn to a positive (blue on top for DMI and MACD above zero with blue on top) in the next day or two. This is because they are lagging on day scales. Were this a ‘bottomy’ chart, I’d have bought and held for the longer trend run up; but this is a ‘toppy’ chart with flat trend. Lots of risk to the downside. So we ‘buy the dip’ but unload it back at the neutral zone.

The other stock tickers on here are ETFs for France EQW, Germany EWG, The E.U. EZU, and the U.K. EWU. They form two groups. France and the U.K. have recovered more and faster than Germany and the E.U. basket. Hmmmm…

OK, let’s look at that U.K. ETF ticker:

U.K. fund on BrExit vs SPY 6 month daily chart

It, too, has negative indicators. That’s reasonable since it has been in a swoon for a month or 2 now. On this chart, it isn’t back to the SMA lines. IMHO that’s likely because of the currency still being down and not fully recovered. A direct look at the FTSE would clarify, and anyone trading in the U.K. will have a different view, not polluted with $US artifacts. So if trading this ticker, you would need to (somehow) tease out the non-stock factors to get your SMA lines right. I rarely trade non-US indexes, so my habitual trade tools are not set up to handle that.

Given the more direct involvement of the UK in BrExit, I’d also expect the FTSE to move further and take a bit longer to recover. So I’d guess that tomorrow or the next day would be the ideal day to close out a trade in the FTSE.

Also of note is how Germany is just not recovering as fast. I think the markets recognize the big risk is to Germany and the EU, not to The United Kingdom. Markets can be very direct that way…

Here’s what the 5 day 15 minute tick version looks like. Remember that as a US traded ETF, the FTSE is closed during the later part of each day and the market maker is just guessing at real value at the next open. Note, too, that the big fall is off chart to the left which is why the SMA stack swoops down from so high on that side.

EWU 5 day 15 min on BrExit

As a 15 minute chart where the underlaying FTSE is closed for hours during the chart, it’s a lot less accurate on the indicators, OK? You can see the ‘step function’ at the open where it catches up with the FTSE.

Note on Tuesday where it has RSI lifting off of 20, with MACD ‘blue on top’ and headed up. That’s the last call buy signal. Normally, DMI would be crossing to blue on top too, but as this is an ETF based on a market that was closed then, it lags until the next day to ‘catch up’. Part of why I don’t like day trades or even fast swing trades in these instruments. The time lags are a killer for me.

As of now, it is saying ‘steady up stay in’, but I’d really take my cue from the actual FTSE. I’m just not sure where to get a chart with these indicators on it for a life FTSE, since I don’t do that ;-)

Again we see Germany and the EU Basket following a percent or so behind the UK recovery.

Never turn a trade into an investment.

IFF you bought this as a trade, that is what it is. Trade rules. Trade timing. Trade tools. Don’t turn a trade into an investment by second guessing the trade rules. If, however, you took advantage of the dip to buy for a long term investment, we’ll that’s great too! But then don’t treat it like a trade.

On a 5 year chart, with $US bias, it’s been in a 2.5 year down trend. This “bottom” is about the same as the prior bottom, so maybe calling a ‘failure to advance to the downside’, but not confirmed yet. Essentially buying and holding now is betting based on news flow that the UK going it alone is going to be better, and decided to buy on a nice fat dip. That’s fine, but not the same as a trade. It is a gamble based on news flow and opinion. (Though the chart is looking like ‘bottom soon’, but has $US artifacts so not as reliable).

In Conclusion

This is illustrative of a news driven fast event trade. It’s a bit different from “the usual” that I’ve talked about, but I hope it is an interesting perspective on news driven trades.

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