With the DOW approaching support and the DAX resistance, is now the ideal opportunity to set up a pair trade?
Hey, a very good evening to you. I’m looking at the DAX and the DOW, two of the major indices today because they are coming up to such key levels and they are a very, very interesting opportunity. Let’s flick onto the DOW first. DOW is having a bit of a down day today, down about 85 or so, not far off the lows. We are coming up to that last all time high, which is interesting and we are overdue this aren’t we? We have had a rally up from the lows, we’ve pulled back a little bit, we had that little five period moving average trade that we talked about a few videos ago that worked out okay, not a home run, but we got that set up. That’s the first bit of supply that came in.
Now we are off the highs a bit, we’re rolled down, two days of DOW move and we’re coming up to that prior high and we’re also pushing up to a 20 period moving average. Now, very often I like to frame a pullback trade against this 20 period moving average, because often if we’ve moved away from the moving average as you can see back here earlier in the year, the first pullback and kiss of it is just generally a buying opportunity. Same if you’re pulling down to the downside, you can see here.
Nothing is ever perfect and accurate but I think I’m going to be looking for buys around that level there, around this sort of level here. I just want to see, maybe a bit of an intraday fall that just pushes under that key level and then pulls back up, maybe it’ll be a couple of day move, I don’t know, we’re getting into that zone, everything is sort of lining up; three days down move, coming to support level, earnings are driving this, so if we get a few weak earnings, we might get that little drive lower that just spooks a few people, so there’s a few things that our lining up potentially can set up back trades. So I’ve definitely got my eye out for that one – I’m a buyer on dips around that 20 period, if we get there of course.
Second thing to look at is the DAX. The DAX is the weaker generally, on the longer term than the DOW. We are well off the all time highs, but it’s an interesting market. We’re pushing back up to that pre-Brexit high and the resistance from before. Pretty decent resistance level at this level – 10 370 to 10,400. Now, to take the complete opposite view as I am on the DOW, I’m going to look to be a seller here if we poke above this. I’m not going to stand just here, waiting for it and put a limit or anything like that. I want to see how the market responds. I say that I’m not going to just cherry pick, but what I want to do is see if we push up, we start to pull back under, then I’m going to look to probably take a few shorts. If we just motor on, then maybe we are going to be taking out that high. But ultimately, anywhere in the next few days if we start to get up to this level or higher, I’m going to start putting on my short radar something that I want to get involved in the short side for because I think that to me looks technically not a bad trade to play. Actually if you combine the two, which is something that would fit quite nicely, to have both on as a pair trade. So if we push up to resistance on the DAX, take the short and then we pull down to support on the DOW, take the long, as a nice little kind of hedged pair trade, to maybe look for a bit of an unwinding on both of those.
So that’s what I’m looking at. I don’t think that’s going to happen today, maybe not even tomorrow. Actually, it could easily happen tomorrow, both of them. So looking from tomorrow towards the rest of the week, those key levels are very interesting to me. Obviously it’s earnings, so we’ve got lots of big things coming out, lots of things to watch out for on there, but the broader indices, those are the key levels I’m looking at and those are the places that I may well initiate some trades if we get there.
Okay, catch you in another video tomorrow, take care.