Market Fears Nothing But Fear Itself

2021-12-01

Rip down, spike up, and go crazy sideways — this market is moving in ways that can shatter a trader’s confidence in indicators, strategies, and personal commitment.

Were you one of the many traders who anticipated continued selloffs and ended up short, staring at a loss? Or did the market dump enough mid-week to save your setups?

The market has shown that it is weary of Covid-19 variants, but not afraid of them. What does the market fear? The market gets rattled by the same thing that draws movie-goers to big-ticket flicks — surprises.

Historically, the market behaved similarly during the attack on 9-11. In terms of rash movement, the market initially experienced a selloff after the attack. Within a short time the market recovered and resolved the uncertainty associated with that event.

In February, 2020, as Covid-19 was revealed to the world, the market declined and eventually hit bottom. But as the lockdowns went into effect — presenting a “new normal” — the market shifted into an uptrend.

The market dislikes surprises, but appears to already factor in these unexpected disturbances.

There are basic ways the market balances against surprises. For example, while the travel sector stocks weren’t high performers during the pandemic, traders who took opportunities within technology and health sectors found solid trade setups. They rode a steady uptrend through the pandemic.

Is it possible to see a rally last through the end of this year?

The market appears to be following the path of least resistance as it continues to climb higher. While Simpler’s traders anticipate a cautious entry into the January market, December looks to be setting itself up nicely. Of course, there are no guarantees.

The market has proven to digest known dangers and worries, including economy-destroying lockdowns.

The Nasdaq, which comprises most of the world’s technology giants, provides opportunities for a rally. Simpler’s traders are watching tech stocks in the Nasdaq that are showing potential for setting up for a squeeze across time frames. The market appears to be hitting the highs on bullish tech stocks that are performing better than the index.

Simpler’s traders are careful not to jump on a one-day bandwagon and remain watchful for buy areas when the market drops. While the market does appear to be setting up for a larger decline at some point, for now, Simpler’s traders are reminded to focus on the charts and what is in front of them without too much risk exposure.