Watch For Lull In ‘Sleeping’ Yo-Yo Market

2021-02-04

The market rallied higher again Thursday as this “yo-yo” environment continued the feeling that this has already been a stretched-out year.

With the constant and often severe swings in the market, finding clear trading patterns has been difficult. Simpler’s traders have focused on avoiding the short side and maintaining patience for opportunities into rallies.

The challenging market environment, which is historically common in January, tends to fade into February and allow for a “breather” as the market absorbs the frenetic energy of the opening month.

The strength of this market continuing to rally higher doesn’t lend any value to thoughts of shorting the momentum. Expectations are this continual upside trend will continue until it isn’t — and the change will likely be obvious and sudden if/when it happens.

Simpler’s traders have been working strategies of keeping light on numbers of positions, tighter on stops, and targeting opportunistic “honey badger” tickers with low risk and a solid chance of taking profit. Setups that allow for quick execution during fast moves of a ticker are favored in this “yo-yo” market.

This “yo-yo” environment  can swing against a position quickly and sharply, so in and out on trades without holding for a longer term has been key. We don’t expect the market — or our accounts — to go up all the time. Taking losses along the way to consistent gains over the course of the year (like in crazy 2020) remains the goal.

As this month eases into a likely lull, don’t be fooled by the yo-yo “sleeping” — spinning in place. It can take off at any moment without a hint about which direction — down, up, or chopping along.

We Saw: Solid rally higher through the day — 

  • Rally boosted by strong economic data across the board
  • GameStop frenzy falls further, down 80%+ for the week
  • Nasdaq, S&P 500 mark record days — again

We’re Watching: Not getting “sleepy” trading into February —

  • Continued support for key tickers rising
  • There are still many more earnings reports ahead
  • Setups in: ITB, SNAP, ATVI, INTC, PINS