After a lower open this morning, shares on the pan-European STOXX 600 Index rebounded, albeit marginally at time of writing. Investors at first shook off trade jitters after reports surfaced before the weekend that US President Donald Trump had instructed aides to levy an additional $200 billion in tariffs, even as the the US administration is reportedly seeking to renew trade talks with China.
While the STOXX 600 managed at least a brief turnaround thus far today, it was led by defensive sectors telecoms and utilities. Stocks sensitive to the trade dispute and economic growth actually fell. Clearly this combination isn’t a recipe for a sustainable stock rally.
Since June, the STOXX 600 Index has been trading within a descending channel. Today’s climb extended a correction from the month’s low.
Within that three-month pattern, however, since August there's a smaller descending channel. The rebound from the month’s low has been unable to overcome the resistance of Thursday’s shooting star, which confirmed the resistance of the violated support of the August 15 trough.
Within half an hour of touching that resistance level, the index has been falling. This makes the case for a continued decline, which could retest the low for the month, at the 372.00 level.
Trading Strategies – Short Position Setup
Conservative traders should wait for a new trough to confirm the downtrend.
Moderate traders may be content with a close lower than yesterday's opening price of 377.01, seeing it as a resistance confirmation.
Aggressive traders may risk a short position right now.
Trade Samples
Short Term
Note: The difference between the moderate and aggressive samples is whether a trader does, or does not, wait for resistance confirmation.
- Entry: 377.50
- Stop-loss: 377.71, above today’s high price.
- Risk: 21 points
- Target: 376.50, Thursday’s shooting star’s opening price
- Reward: 100 points
- Risk-Reward Ratio: 1:4
Mid Term
- Entry: 377.50
- Stop-loss: 380, round number above today’s high price.
- Risk: 50 points
- Target: 372.00, above the September 7 trough
- Reward: 550 points
- Risk-Reward Ratio: 1:11