The unprecedented drop in equity markets over the past few weeks has most traders expecting more downside in the weeks to come. To see the overall bearishness in the market, look no further than the DSI reading for S&P Futures on Friday – that came in at just 5% Bulls. While low sentiment doesn’t guarantee a move higher in price, historical data shows the recent bearishness may provide an opportunity for a profitable long trade:
Recent DSI Readings:
- S&P Futures closed at 8% Bulls on 03/19/20 (Previous Day)
- S&P Futures closed at 5% Bulls on 03/20/20 (Setup Day)
Trade Setup:
When S&P Futures close between 4-6% Bulls after losing 2-4% Bulls the previous day, go long if the market trades above the midpoint of the setup day. To lock in profits, use a trailing stop one tick below the lowest low of the previous two trading days.
Trade Details:
- Set Buy Stop order at 2379.75
- Once order is filled, place stop order one tick below the lowest low from 03/20 or 03/23
- Adjust the trailing stop at the close of each trading session
Historical Example:
- On 10/14/14, S&P Futures closed at 8% Bulls
- On 10/15/14, S&P Futures closed at 5% Bulls
- On 10/16/14, S&P Futures traded above the midpoint of 10/15/14 (trade entry at 1791.50)
- The trade ended when the market traded below 1970.00 on 11/17/14 (trade exit at 1969.75)
- The trades gained 178.25 points for $8,912.50 in profits
Historical Results:
- Since 2006, this setup has occurred 11 times
- The 11 setups resulted in six wins and one loss (four setups didn’t trade above the midpoint)
- Those seven trades resulted in 330 points or $16,500 in overall gain
— SENTRADE is currently working with some of our large scale clients but wanted to drop in to share a his expertise during this unprecedented time.
CONVICTION. EXECUTION. DISCIPLINE.
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