Interest Rates Spike, Stock Market Chop Continues

2022-02-15

The market has not responded favorably to announcements of an intermittent Central Bank (Federal Reserve) rate hike that will be implemented even higher and faster than expected.

Market response has kept movement choppy, as shown by a down day Monday followed by a rally higher today. This constant up-and-down creates a back-and-forth environment for interest rates.

Another market correction ahead?

As an example, the interest rate of the 10-year note last week pushed back up above 2% for the first time since 2019. This is an increase of more than 100% from last August. Mortgage rates, after previous lows that stimulated the real estate market, are now spiking – even before the Fed raises its rates.

This leaves many traders asking, “What happens next? Will the markets crash?”

In the history of markets, inflation, and interest rate hikes — when talks of rate hikes turn to reality, the market tends to correct 20%. That has already occurred in this current market environment due to the pandemic.

Will there be another correction this year? History tells us what has happened in the past and what could be repeated. What history doesn’t tell us is what will actually take place, or when. 

Simpler's traders are being careful with any assumptions that the market will drop significantly and are playing chart signals as revealed by the market.

When Simpler’s traders look at the structure of what happened recently – with a 50% retracement from swing high to swing low – it would not appear the market could make new highs.

Planned interest rate hikes loom over market

Even with inflation, rate hikes, and announcements from the Federal Reserve, the market tends to be smart about pricing in possibilities ahead. This uncertain market has the potential to gap back up after recent shorting opportunities. After that there is potential for sell offs in the indices.

Simpler’s traders constantly refer to historical charts to look at how stocks or indexes behaved in recurring situations — interest rate increases, earnings releases, military invasions, and other calendar events. Historical price charts allow traders to identify major levels of support and resistance that occurred so they can identify similar trending movements.

Tracking market movement across time frames

Simpler’s traders look back at multiple time frames from one month, several months, then to several years to gain a broader picture of market or individual stock movement.

The team at Simpler Trading has decades of combined experience applying historical charts and indicators to their trading strategies. Tools and strategies, like “Weekly Wires,” enable them to maneuver through tricky markets, such as this.

Now is an opportune time to trade alongside experienced traders who have been down this road before.