Introduction
As someone who trades both UK and US stocks on the eToro platform (profile = SteadyProfits), I am all too aware of how little movement there has been just recently on the major UK and US stock markets.
If you look at the daily chart of the FTSE 100 index below, you will see that it appears to have stabilized in the 7100s, having continuously traded between 7100 and 7200, and there is no real momentum to take it higher or lower at the current time.
Indeed the last time it closed outside of this 100-point trading range was as long ago as 1 March. The price just doesn’t seem to want to move away from the 100 or 200-day moving average at the moment.
This is almost certainly due to all of the uncertainty surrounding Brexit because the markets are waiting to see what will happen on 29 March. The threat of a no-deal Brexit appears to be receding, with an extension almost inevitable, but there is the growing threat of a second referendum, which could result in Brexit being cancelled altogether.
However it is not just the UK market that has been trading in a sideways trading range this month because the Dow Jones has also been trading sideways with no real direction, as you can see below:
After bouncing back from its December lows, the price has risen above its long-term moving averages, ie the 100 and 200-day EMA, and is trading just below its highs from last month at around 25,700.
Trading Opportunity
So what does all this mean from a trading point of view?
Well at the moment it is hard to enter any trades with any real confidence, and if these two markets were to test their highs again, it would be hard to justify a major breakout to the upside at the moment with everything that is going on with Brexit and China.
Indeed even if there was some clarity with regards to Brexit, it would still be hard to predict how the FTSE 100 is going to react to this news. That’s because even though it would be natural to assume the FTSE 100 index would move strongly upwards if Brexit was delayed or even cancelled, the strengthening of the £ could actually cause the index to fall because many of the largest FTSE 100 companies report their earnings in US dollars, which would obviously be weaker.
So I think it is better to wait for any news first of all, and then wait for a decisive breakout. As I said, I wouldn’t necessarily be confident about trading an upward breakout, but if the price were to fall below the long-term moving averages with a downward moving average crossover, there could potentially be a lot of potential downside, and this would probably be a higher probability trading opportunity.
Anyway these are just my own thoughts and opinions. As always, this does not represent professional trading or financial advice. You should always do your own research before entering any trades.
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