No Time For Wild Rides – Adapt Or Pay

2022-01-25

Insightful traders will think hard before stepping onto this bus. This market isn’t playing around.

While Simpler’s traders have learned how to adapt in any market direction — they don’t relish a market that lacks structure like we’re seeing.

Markets trend in one of the three directions – up, down, or sideways. A market without a defining edge on the price range leaves traders feeling uncertain. 

Generally, as price points move from bullish to bearish, or sideways, structure forms in the charts. That structure serves to find support and resistance levels. Key indicators allow traders to read the market and gauge directional movement.

This market is no longer able to find key support. And it’s headed into bearish territory.

With no structure forming within the range, Simpler’s traders are looking to find guidance from the earnings reports and a midweek announcement from the Central Bank.

The market appears to be calling Federal Reserve Chair Jerome Powell’s bluff on the interest rate hikes. Will the Fed make an effort to reassure market players with a slowdown on rate hikes? If not, the market is not expected to make a bounce back to the mean price any time soon.

With an economy based on debt, the rate hikes may just be too far, too fast. When debt is propped up by assets, a significant drop in the market has an extended reach — into currency, gold, and even silver.

The indices are still tradable, whether moving up or down in a healthy correction. But, without the ability to find structure, this market is sketchy, at best.

Following selloffs on Thursday and Friday, Margin-call Monday had the potential to send the market into freefall. Many traders found religion after massive selling on Monday, despite the late-day rally. And a sustained rally has not yet made an appearance. Keep an eye on the key exponential moving average levels. 

How will the market respond to selloffs?

Traders who watched as the tech sector gave up all of its gains aren’t making odds just yet. While the potential is there to buy the dip in the technology index (Nasdaq), there also exists the potential for a drawdown.

Simpler’s traders are exercising caution.

Being safe is rarely interesting, but aggressively going long or shorting this market would be dangerous. To be safe, trading flat during volatility can keep traders in the game. Drilling down on a 30-minute chart to revert to the mean is a good strategy for potential profit from stocks that stay flat or only go down somewhat.

Simpler’s traders know that the market gives off signals. Understanding how to read the continuation of the trend – or the breakdown of the trend – comes from being able to read market structure.

The easy-to-trade market of 2021 is over.

Doesn’t it make sense to read the road signs before you get on the bus?