Who’s That Knockin’ As Volatility Rocks?

2021-11-24

When volatility knocks, Simpler’s traders get serious about their setups.

How do traders know who’s at the door — a pullback or a rally? Quite simply, they don’t.

That doesn’t mean traders lock the door. They look for ways to open up potential trades with what the market gives.

In anticipation of either a sharp pullback or an end-of-year rally in this nervous market, Simpler’s traders are watching the indicators for solid buying signals for a daily or weekly squeeze. That squeeze potentially can be on the short side — in which case the squeeze could cause selloffs to cascade like waterfalls.

What we know is that a nervous market can get dangerous quickly. No trader wants to find themselves in trouble after a sharp move.

As of late, high-growth stocks are beginning to get pressured. Simpler’s traders maintain careful watch on these stocks as precursors to a market pullback. What is still uncertain is whether the move to the downside is a single-day warning or if it is signalling the beginning of a market downtrend.

Also this week, bond rates increased — not a good sign for high-growth stocks. Market favorites all took hits this week.

When a pullback starts, high-growth stocks tend to be the first to feel the punch. 

Despite these signs of a nervous market, there are signals hinting an end-of-year rally is building. If buying signals continue in their current pattern, taking opportunities during pullbacks could play a strategic role through the end of the year.

The S&P 500 has been showing solid movement, although indicators have traders wondering if the index is becoming exhausted with nothing left to give. When Simpler’s traders see weak spots in the darlings of the indices, they buckle up and prepare for a rough ride.

Technology stocks are still holding steady, but Simpler’s traders are watchful for any significant drop that could signal trouble ahead.

In today’s market, traders tend to focus their efforts on one sector — like technology — because the key tickers have generally held strong through market volatility. Simpler’s traders are reminded not to have their portfolios locked into one sector of the market.

The market can certainly trend in either direction at this point. The price action reflects a good deal of emotion in the market.

As the market opens high, it tends to go higher because sentiment is still good. When the market becomes exhausted, selloffs will happen quickly.