Does Choppy, Sloppy Market Hold Opportunity?

2020-10-26

A crazy market doesn’t always look opportunistic after a session like today.

The Dow closed at 27,685.38 points to fall 2.29% (dropping 650 points on the day). Early in Monday’s session the Dow was down more than 900 points. The Nasdaq dropped to 11,356.16 points for a 1.66% tumble while the S&P 500 gapped down 1.88% to 3,400.21 points.

The good news in this crazy storm is that after a flush there will be opportunity. 

With the upcoming presidential election, many factors are significantly pressuring this market. Just days until this event watched around the world, there is no economic stimulus from Congress, October is traditionally a rough month in the stock market, and earnings from FAANG (Facebook, Apple, Amazon, Netflix, Google) and similar sector leaders hang in the balance over the next few weeks.

Prior to the 2020 pandemic and political turmoil, traders enjoyed a fun ride with the market rising to the upside. But just as with gravity, in the stock market in order for prices to go up again, they must come down.

Trying to pattern this type of market environment is a lot more difficult, and many would not consider this a fun time for trading.

Trading can be really tough even with a solid chart pattern when the indexes take out key support. Simpler’s traders are focusing on “liking the stock” (finding a stock with suitable setups) while “hating the market.

Simpler’s traders remain optimistic, but cautious, and are leaning into a “flat” cash position. The longer a trade is held in this environment, the more chance there is for this market to twist or turn and break the wrong way.

Bailing on everything usually doesn’t fit everyone’s trading plan, but slowing down and carefully considering stock-specific setups is a viable path. “Living to trade another day” has saved trading accounts from periods of uncertainty.

As always, when the risk in a trade setup pushes against comfort zones it signals a good time to just close them out. If the situation changes to an advantage, getting back into a trade setup is just a click away.

We Saw: All indexes tumbling to open the week — 

  • Uncertainty grows around economic stimulus, Covid-19 cases, and presidential election
  • Biggest one-day selloff in weeks
  • Gap down continues drop that started last week

We’re Watching: Cash position while watching for opportunity —

  • “Fear Factor” (Volatility Index) on the rise again
  • Not leaving any long tails out for the rocking chairs
  • Setups that don’t fight the indexes