Reading Stock Charts Key To Trade Setups


Simpler Trading Team

Mar 01st 2022  .  3 min read

The major U.S. indices and a few other critical components have provided traders with a few clues and a guide to trade setups as the market responds to conflict in Eastern Europe.

How much more risk is there in this volatile market with the escalation of the Russian invasion of Ukraine?

The Dow closed at 33,294.95 points to fall 1.76% (dropping 597.65 points on the day). The Nasdaq dropped to 13,532.46 points for a 1.59% tumble while the S&P 500 crumbled 1.55% to 4,206.26 points.

Can stock market rally higher with economic tensions?

Traders are also asking how much longer can an oversold market keep bouncing back after every major news and economic negative? Can it make it to new highs anytime soon? The signals on the charts indicate this is not likely.

This leaves traders questioning when to hang on to bearish trends and when to watch for a bounce. As the market rallied to a high point near the end of last week, this gave Simpler’s traders mixed ideas as to the direction of the market.

By studying stock market trends, traders know “trends are our friends” and right now the Nasdaq is on cue in a bearish mode. As for the rest of the major U.S. equity indices – much is uncertain.

The Russian stock market ETF (RSX) took a hard hit after the invasion, dropping even further after already trailing downward. The Russian government has since temporarily closed the market because of economic turmoil related to the military attacks.

Chart signals to watch – wheat, crude oil, gold

While the headlines continue to pound market confidence, the dynamics of the conflict in Ukraine present a unique set of monitors in the global market.

Ukraine is a resource-rich country. It provides food and commodities to Europe, as well as a pass-thru for Russian pipelines supplying natural gas to neighboring countries.

Wheat (ZW) has a bullish chart after a downward move. Why is this important? Ukraine is one of the largest producers of wheat in Europe. With wheat as a proxy for the tension in the commodities market, traders are using this commodity as a signal that the risk in the market is coming down.

Russia is a major producer of crude oil (CL), and a significant supplier of this energy source to European countries. Any geopolitical risk tends to show up here.

Both oil and wheat capture the market spirit of the conflict dynamic.

A third major area to watch is gold (GC). Gold had a recent moonshot then gave it all back. The importance of this is that the metal currency serves as a place to allocate cash during market uncertainty.

Market tracking signals provide trading setups

The continuation of the Russia vs. Ukraine conflict elevates risk in the broader market. As any tensions dissipate, they will show up in these three markers – ZW, CL, GC. 

These are important areas to watch because if these three assets move lower together, this indicates market tensions are abating and could serve as a green light to buy stocks

If they all three move up together, the temperature of the conflict would appear to be moving upward. Traders would do well to be cautious with long equity trades.

Simpler’s traders are intently watching these three critical market tracking signals can reveal setups while gauging market sentiment as it grapples with the conflict in Eastern Europe.