Market Falters, Pro Trader Sees Strength Ahead
Should traders jump on the downhill bear train after another day of bleeding in the stock market?
Maybe not so fast, says one pro trader.
The stock market is flashing upside sentiment and bears may have stronger days later in the year.
Focus on one, two good trades daily
After a solid finish following “disinflationary process” comments from the Federal Reserve (Fed) on Tuesday, the stock market flipped to the downside at the midweek mark.
In the market today, the Dow closed at 33,949.01 points to fall .61% (dropping 207.68 points on the day). The Nasdaq dropped to 11,910.52 points for a 1.68% crumble while the S&P 500 tumbled 1.11% to 4,117.86 points.
The constant flipping in price action is enough to frustrate even the best of traders.
“The market is an equal opportunity dream killer,” said John Carter, Founder of Simpler Trading, noting how most stock market participants are late to the next big move.
He cautions traders to be careful, selective when executing trades in this choppy environment.
“There are all kinds of crazy things happening every day in the market,” John said, including big moves that many traders miss.
He discourages traders from feeling guilty about missing potential trades, and there is no need to chase every new shift in the market.
“You just need one or two good trades a day,” John said.
In this market, John is focusing on smaller time frame charts to follow market movement.
Shorter chart time frame is ‘the trend’
John sees the 30-minute chart as the “time frame that is the trend.”
No matter how the market is moving, he is leaning into the 30-minute chart, particularly when following the S&P 500 (SPX).
This helps zoom in on price action, John said, and he’s watching for a pattern of higher highs and higher lows that reveal potential setups.
“In this market environment, this is essentially your bigger move chart,” John said. “On the 30-minute chart, we’re looking at the trends as it overlays onto those key levels on the daily chart.”
While he is enjoying day trading, John always enjoys longer trades that take up to several days where he doesn’t have to stare at the charts.
To accomplish this in a choppy market, what he has found is overlaying the daily chart onto the 30-minute chart and displaying key daily technicals, such as the 5-, 8-, and 21-day exponential moving average (EMA) imported from the daily chart. He also incorporates Keltner Channel points, particularly the 3 average true range, high and low.
“This gives me a way to really drill down to what is happening on the chart,” John said. “We can see the ebbs and flows a little cleaner on the charts and play these.”
Strength into March, second half of year likely ‘ugly’
Thanks to less than stellar earnings reports, lowered expectations on corporate future performance, and ongoing Fed-induced concerns, John is seeing traders getting bearish on the stock market.
That may look good within the lastest news media cycle, but John is following bullish signals. His technical chart analysis is steering him to watch for a push higher toward 4,300 on the SPX into mid-March.
He is also looking for strength into mid-March in the Nasdaq (NDX), watching for a rise toward 13,000.
“From there it’s a little dicey,” John said. “I think we’ll be stuck in a range for a while.”
As with any phase of the stock market, there is no certainty whether the market will take out the low in the second half of the year. John sees the latter half of the year as a phase of potential “ugliness” to the downside that deserves caution.
John is being patient and waiting for how the market unfolds, and he is not shorting this market, yet.
“In the second half of the year I think there will be some opportunities,” John said.
As the stock market moves forward, John sees the technology sector as having hit a “tech recession.” This is spurred by high-profile companies of the past few years losing valuation and missing expectations in recent earnings reports.
While tech falters, John noted there are companies showing promise along the way. He targets companies, like Deere & Co. (DE) not showing weakness despite market conditions. These companies have been less affected by the Fed quantitative tightening policies over the last year.
“There are just a lot of companies out there that are doing fine based on this environment,” John said.
As the market pushes toward March John continues to watch the U.S. Dollar Index (DXY) which has spiked up recently, prompting market volatility. The dollar is still a long way off the late 2022 high of 114.
“Ultimately it benefits the world to see the dollar edge a little bit lower,” John said.
A down day like today has John watching the stock market without jumping into the latest move too quickly.
“There is no need to be overly bearish right now in my opinion,” John said. “If you’re trading in the short term, day trading or a couple of days at a time, go with the trend.”
Traders can follow John as he trades live during the latest stock market action.