Early Stock Market Rally Falters On Economic Data


Simpler Trading Team

3 min read

The morning session today should be an alert for traders to prepare for a continuing choppy, volatile stock market.

All three major indexes opened the session rallying higher with the Dow jumping up by more than 300 points. The Nasdaq was up almost 2% and the S&P 500 joined the charge.

By late morning, the Dow fell rapidly into negative territory and all three major indexes gave up earlier gains. The Dow gave up 500 points off the rally high by midday.

Early stock market rally falters on economic data

The morning recovery from heavy losses Monday didn’t hold through the lunch hour Tuesday.

The stock market rally faced contrasting economic news from the U.S. Census Bureau with durable good orders down slightly while capital goods orders rose more than expected. Mixed with continued expectations of rising inflation costs for winter months ahead and the market fired higher before retreating from its early gains.

The market is fighting against the possibility of a deeper recession. The U.S. economy is in a technical recession with two back-to-back negative quarters of U.S. real gross domestic product (GDP). The official third quarter GDP release date is during the last week of October.

The forecasting model from the Federal Reserve Bank of Atlanta – GDPNow – shows the latest estimate for third quarter GDP growth is stronger at .3%. The forecast is set for an update on Friday.

Fickle market could gap, rally at any time

Traders are facing a parade of economic information and likely volatile moves as the third quarter comes to a close on Friday.

Questions of selling the rip or buying the dip seem trivial compared to the information traders must digest when predicting the next market move.

Economic data, earnings reports, inflation updates, and multiple Federal Reserve (Fed) central bankers appearing at events while talking “Fed speak” have created an environment of nervous stock market participants.

The fast rally higher this morning followed by a steep regression into midday shows how fickle this market can be from one moment to the next.

Simpler’s traders are keeping it simple with their daily trading plan. Selling the bounce has been a strategy and will hold the focus until it stops working. Expectations are for this market to continue its downward movement.

How low will stock market go?

The S&P 500 low Monday – the lowest since mid-June – was surpassed in midday trading on Tuesday when the index fell to 3,630. The Dow has pushed into bear market territory by falling more than 20% from its January high.

Simpler’s traders are watching for this market to move wildly, and cautious that any “Fed speak” could potentially set off even more volatility.

If the market maintains uncertainty anything like last week, it has the potential to chop wildly while continuing toward levels below downside support.

There is an old adage among traders, “The market is down until it’s not.”

This market isn’t done digesting data and working through the volatility.

Day trading ad