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  • Writer's pictureDragostin Kozhuharov

Short SP500?

Ever since a friend of mine explained to me what a 'short' trade is, I have had a tendency to focus on my pessimism and actively look for short trades. I recently told him that I blame him for this and any losses I make on my shorts from now on, he will have to refund me. Generally speaking, the way all markets have moved recently, it seems that not knowing what a short is, would have made you some decent money.

This trade idea started formulating last week. It was mainly based on technicals, as at the moment new fundamental data (NFP) seemed positive. The first time I entered was at exactly 3336 last Friday.

SP500 daily chart

I did this because I thought that the 21 January 2020 high standing at 3337.60 could act as a resistance level. I also marked the 6 February 2020 high as a place where I will potentially exit the trade if it really went against me.

After I entered the trade, it was making me feel uncomfortable, but I decided to let it breathe a little. Not seeing the price action to the downside I was looking for, I exited for a small loss at 3343.17 which later proved to be a wise decision.

Maybe my timing was a little bit off, and even though it looked like a decent idea on paper, if it was making me uncomfortable I shouldn't have done it.

Moving on to this week, I was looking at my screens yesterday and noticed something odd - we had nearly everything selling off - Gold, Silver, Crypto etc. Also some USD strength kicking in, yet indices were moving up. Considering that since the Fed and other Central Banks started intervening in the markets in March, everything was moving together in one direction, this made me think that maybe the timing is right to try another short. That being said initially I didn't act on this discrepancy, because equities seem to have a mind of their own these days.

A little bit later I revisited the charts and could see that indices were still holding on to a positive day, but had pulled back from the highs of the day. This time I decided to act and took a trade with an entry of 3361.67. Immediately after, I had the reaction which confirmed my thinking and stocks tanked into the close of the trading day.

As of this moment, I am still holding this trade. This morning seems positive for markets now, hence some of the unrealised profit has been erased, but I am prepared to wait and see what happens during the US session and potentially hold this for a few more sessions.

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