What’s Next Market ‘Shoe’ To Drop?

2020-04-07 | Simpler Trading Team

Raise your hand if you believe the market has hit bottom during this crisis?

And… crickets.

Despite the surge yesterday and the blistering run up early today, the consensus at Simpler Trading is that there is continued downside risk.

And the market seemed to take note of this uncertainty. The Dow jumped out of the gate Tuesday and spiked to a 900-point gain before squandering the rally. Key sectors lagged throughout trading and the Dow ended down 26.13 points on the day.

The Nasdaq and the S&P 500 barely held on for minimal gains at 8.99 points and 11.76 points, respectively.

Things could get uglier still as this market is trending similar to the 2008 crisis. Patterns of surges followed by sudden drops heralded an even worse than expected bottom that took 17 months to confirm.

Simpler’s traders are watching for a potential bottom to possibly take out lows set in March. That bottom may take months to hit, and traders will have to wade through the uncertainty until after the fact.

There’s no certainty in when the bottom happens, and there’s possibly another “big shoe” to drop.

GDP is suffering under the crunch of an “all stop” to the economy.

The worst quarterly GDP drop in the 2008 crisis was just past 8%. By comparison, Q2 GDP this year is expected to drop a staggering 20% or more.

That’s an ugly scenario that could have far-reaching consequences in market conditions, the economy, and life in general.

This is all unknown territory that no trader, or anyone, has faced before in the modern world.

Simpler’s traders raised their hands to caution about the need to continue avoiding risk, pursue sound trading setups, and maintain a strong cash position. And, be wary of overnight trades.

We Saw: a market struggling mightily to find direction — 

  • Key sectors just not able to gain ground, even losing
  • Traders desperately seeking an upside swing
  • Coronavirus uncertainty hovering like a dark cloud

We’re Watching: … for a possible kick to the downside —

  • History showing a pattern of surges and sharp losses
  • How badly declining GDP hits the markets
  • Will GDP concerns push the market to drop below March lows?

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