Seasonally Frigid February Ices Market

2021-02-25

A hot, charging market went cold Thursday as bond yields sent investors into a frenzy.

Were traders ready for this seasonal weakness that hit like a sudden winter storm?

While news pundits were scrambling to make sense of the frigid February weakness, the reality is the market was powering through a seasonal cycle.

The session wasn’t pretty for those holding long positions in the worst sell-off sense October.

The Dow was down as much as 650 points in the session before closing at 31,402.01 points to fall 1.75% (dropping 559.85 points on the day). The Nasdaq gapped down to 13,119.43 points for a 3.52% tumble while the S&P 500 crumbled 2.45% to 3,829.30 points.

For those keeping pace with Simpler’s traders, they knew hedges have been in play and stops were in place according to pre-established trading parameters. Cash and caution have been ongoing strategies at Simpler.

There is never a perfect play when the market cycles harshly, but hedges and stops are proven ways to minimize losses if necessary without getting caught in the storm.

Despite how hard this session and ones to follow may be for some traders, this seasonal weakness can be viewed as a healthy part of the market cycle. Some might look at this market season as similar to the hard frost before the renewal of spring.

Simpler’s traders are following this cycle closely, searching for opportunities. The caution in this season is clear: account safety is a priority and anything can happen in this market.

Where will this market be on the last Friday of February which traditionally has a bearish tone?

No one can see the future, but Simpler’s traders are expecting anything and prepared to ride out the cycle.

We Saw: A harsh seasonal change in the market — 

  • Long positions getting caught in big sell-off
  • All three indexes gapping down
  • Bond yields driving pundits batty, market down

We’re Watching: Bonds heat up, economic boom still ahead? —

  • Caution in positions... cash as a positive defense
  • Not running into a bear on a final Friday
  • Staying safe and rechecking our pre-trade checklist