I’m Waiting To Go Short On FTSE

Every FTSE (^FTSE) chart looks to be running on steroids; that’s why I’m watching for a sign to sell it.

Stock markets are flying after receiving the blessing of heavyweight worthies like Beardy Ben and Warren ‘how does this damn phone work’ Buffet. And I have to admit that the FTSE chart looks good for more. But I’m still a miserable bear, sulking cos it cost me money during the summer, and I’m looking for an excuse to sell it.

The RSI momentum indicator is flashing up ‘OVERBOUGHT’ on every chart from daily down to 10-minutes, though the weekly chart isn’t quite there yet. The RSI number, though tempting, isn’t enough reason on its own to risk selling a market that’s clearly on illegal substances. So I’m scanning the horizon for supporting clues.

My favourite strategy for trading FTSE is to use a 5-period EMA/ 6-period SMA crossover, confirmed by an RSI below 50. The trouble with that one is that we might only be looking at a 20-30 point pullback, and it’ll take that just to trigger this method.

A shorter time-frame would get me short quicker, but with traders in this mood I reckon that’s too risky; I’d rather not trade than throw money away on a ‘trade at any costs’ mentality.

I’m prepared to hold off and wait for an early warning from a bearish divergence on the RSI (it’s not even close yet), then watch the candle patterns for a reversal sign; something like a bearish engulfing candle, a shooting star or a hanging man.

I’m not as confident of this trade as it means spitting into a strong wind, so if there’s any doubt I’ll keep my powder dry for better opportunities. If I do trade I’ll place my stop about 10 points above the day’s high so that if I’m wrong I’ll be out without too much damage.

Of course the alternative trade is to buy the market, perhaps with a stop loss just below 5100, but that’s not for me.

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