Squeeze May Downshift ‘Blah’ Stock Market Moves


Simpler Trading Team

4 min read

Equities stumbled for the second day in a row and Simpler’s traders aren’t holding out for a big change from the ongoing “blah” stock market.

Fast gaps down or rallies higher within a choppy range are the expectation until something changes the overall market momentum.

This market is a shifting puzzle for traders.

Options with Henry Gambell
Futures with Jack Roberts

Traders still watching for downshift in stock market moves

The stock market hasn’t provided definite signals for a sustained trend as it tests lower support levels and then moves back to testing upper resistance levels.

Rapid up and down movement – often spurred by news events – keeps the market in a choppy, sideways movement that creates difficulties for traders. Solving the puzzle forces traders to default to a day-by-day trading strategy.

Thursday was an example of what happened when a Federal Reserve (Fed) member gave a speech that set off a sudden market reaction, which was magnified by U.S. Treasury yields continuing higher (benchmark 10-year Treasury yield hit 4.239%) and the U.S. Dollar Currency Index (DXY) continuing in a high-end channel. The DXY was at $112.898 at market close.

“We’re accomplishing nothing but sideways (movement) to fill in the price void,” according to Neil Yeager, Futures and Training Room Content Provider at Simpler Trading. “That means we’re going to hang out here for a little bit more of this sideways to higher action.”

He has been watching the market attempt to stretch higher, despite the last two days of moderate losses.

“I cannot expect that this uptick is over until it finishes the (upside) test and then rolls,” Neil said.

Neil noted that there are trades within this range, just not many that are very inviting to cautious traders.

“All is not lost here,” Neil said. “I would not look for much of anything. It’s just more of this until it’s not.”

Neil acknowledged that there will be differing views on current market conditions as some are saying the market lows are already in for the year.

That sentiment comes with the caution that the Fed is set to add more roadblocks to the economy with more raises in benchmark interest rates at its November and December meetings.

“That has me thinking lower for the market,” Neil said.

Traders across the spectrum are expecting the market to show a trend that hasn’t materialized.

Joe Rokop, Managing Director of Commodities and Equities at Simpler Trading, hasn’t seen enough momentum in the market the past few days to push his bias one way or the other. He uses the S&P 500 as a central guide to how the market is moving.

“We’re in a bit of a precarious zone,” Joe said. “I’m looking for the market to break out of this.”

Still, Joe anticipates more chop ahead, and traders have to watch for the market to become more clear with a more defined direction.

Squeeze showing in steadily rising DXY

Traders can follow this sideways market movement by tracking the squeeze indicator.

Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading, used the DXY as an example.

He has watched a squeeze setting up within the overall bullish trend of the DXY. The DXY has been in a bullish uptrend since mid-January when it pulled above its low of the year at $94.79.

Henry will be following the DXY through options expiration this week and any possible further consolidation of the squeeze next week before a potential breakout move.

Internal market signals are indicating that the DXY could push above $115 in the near term and as high as $120 as the year draws to a close.

Moves this high in the DXY could spell trouble for equities which tend to drop as the DXY rises.

“Stay on your toes out there,” Henry encouraged traders.

Simpler Options Gold