Market Chopping, Building To Burst Of Energy?


Simpler Trading Team

3 min read

Can you stomach the squeeze?

In the last few months the market has chopped so sloppily there seemed to be no end in sight. Now all the build up, especially recent weeks, appears poised to push aside uncertainty and deliver a level of defined direction.

Understanding how squeezes are building requires looking behind the mixed closing numbers hitting the market the past several sessions.

Simpler’s traders are seeing squeezes forming across the market in sectors and tickers. This is shown by two phases of a squeeze:

  • Energy build up – A sector or ticker starts pushing toward +1 or +2 the average true range (ATR). This is what we’ve seen with the continual, lackluster back-and-forth from -1 ATR to +1 ATR for an extended period.
  • Energy release – All that chop and build up breaks higher into +2 to +3 ATR. This is the target for Simpler’s traders as they seek conviction in a directional move.

The first phase is still in play with squeezes building at seemingly every point in this bullish market. Expectations are for a release within weeks and possible runs toward all-time highs.

During this phase it is important to develop patience and discipline to hold through the energy build up, so before the release happens any trades are in position to take advantage of the move.

This emotional control can come from planting seeds in a few select squeezes and then having the trading mettle to stomach various degrees of chop. Maintaining these positions preps traders for taking profits.

The immediate goal is to focus on sectors and tickers that show strong squeezes and execute trades that fit within an established trading plan and risk management. These flow from chart patterns and setups that Simpler’s traders follow for their “bread and butter” trades.

Keep in mind, benefitting from a squeeze’s release of energy requires stomaching the grind and chop as the squeeze builds.

As squeezes appear to be building across the board, caution is warranted so traders don’t take on too much exposure (too many trades). With many squeezes in play, traders can focus on setups that best suit their style or trading plan and execute entries and exits that fit within their wheelhouse of risk management.

With this broad energy build up, the stage could be set for a fast and furious summer throughout the market.

We Saw: Politics, media pressuring market sentiment –

  • Hollywood working for a summertime resurgence
  • Inflation is talk of the town and around water coolers
  • Meme mania pushes AMC stock to frenzied heights

We’re Watching: Squeezes building for release like fireworks show? –

  • Earnings trades still ripe with potential
  • “Paint drying” trades while chop grinds along
  • Setups in: EXPR, SPX, NDX, CAT