S&P 500 Chart Levels Fuel Bullish Sentiment
Current stock market conditions are like a hungry hippo.
The market cycles by destroying short traders, getting long traders excited, destroying long traders, and getting short traders excited. It’s a ravenous appetite that builds up traders and tears through the market, then repeats.
The key for traders is to stay ahead of the cycle and take advantage of the next move.
News not bad enough for pro trader to go short
Traders must avoid letting bad news and a hungry market from taking over their trading plan.
The past few weeks have been a barrage of banks failing in the U.S. and abroad, ongoing inflation, and central bank interest rate hikes.
“It’s all doom and gloom,” said Jack Roberts, Director of Options Strategies and Micro-Futures at Simpler Trading. “It’s pretty bad news out there.”
But Jack doesn’t let bad news derail his trading strategy. He has held that the market will continue this cycle – gap down, bounce higher – and he is looking for the next upside.
“The news isn’t bad enough for me to be short,” Jack said. “With everything combined, I have more of a bullish argument for anything now going into April.”
Pro trader looks for market to rebound even higher
When targeting a move higher in the market, Jack is watching key chart levels that can reveal market movement.
Central to his bullish sentiment is the market holding 3,950 and higher on the E-Mini S&P 500 (ES) index futures. Jack argues that the ES below 4,000 is temporary, and next week it could shift higher for a retracement back toward 4,200, or higher.
Jack pointed out that equities have proven resilient. This week when the central bank hiked interest rates in a financial crisis the stock market didn’t fall apart. The market is hungry for liquidity, he said.
“I tend to look at these FOMC meetings and everything that is going on with interest rate hikes as liquidity events,” Jack said. “You have a lot of trading going on in a very short amount of time then all of a sudden it’s just kind of over.”
That may be the opening for the market to rebound.
“I wouldn’t be surprised if we didn’t start to try to take out the January highs and ultimately that would get us on the right path to take out the 2022 August high,” Jack said.
The August high was near 4,300.
Bullish conviction is tested daily in wild market
Jack’s bullish strategy is tested daily in this sporadic market but he holds to his conviction – as long as it makes sense.
Bullish sentiment held to close the week with the ES still on pace to stay above 3,950.
In the market today, the Dow closed at 32,237.53 points to notch higher by .41% (adding 132.28 points on the day). The Nasdaq was above flat by .31% to 11,823.96 points while the S&P 500 edged higher by .56% to 3,970.99 points.
Jack encourages traders to keep sight of the bigger picture and look for a bear market rally back to the January highs, or even the August, 2022 high.
His bullish sentiment is supported by action in the U.S. Dollar Index (DXY).
Jack is following a DXY daily chart squeeze that appears ready to release, and that might accelerate his bullish approach to this market into next week.
“If the dollar continues to normalize or go back to $100, then I think that is helpful for the S&P to stay above 3,950, continue to chop out 4,025 and continue to maybe melt up into the first week or two of April,” Jack said. “It all depends on when these squeezes start to fire.”
The dollar has been an important stock market chart indicator for the team at Simpler Trading.
“If the dollar is going down, stocks are going up,” Jack said.
The dollar closed higher on Friday, up by .56% to $103.11. The dollar has fallen from its 2023 high of $106.65 earlier this month and is down from its September, 2022 high of $114.10.
Stock market appears to fight for moves higher
Jack sees the stock market as working to digest more than a year of quick, harsh ups and downs.
“One of the most important things you have to realize is we spent the entire year in 2022 consolidating and continuing to just kind of fall,” Jack said. “Now we’re not making new lows.”
Bad news is likely to be ongoing this year, with bullish opportunities along the way.
“The market is fighting and I’m saying there is a chance,” Jack noted. “It might just take a while to get this machine going.”
“If you’re bullish you have to give yourself more time,” he added.
Market movement can shift quickly so be prepared
Being long in this spastic market may seem contrary to how the market has been moving overall.
“While this may be an unpopular opinion, hopefully my point of view helps open your mind to other possibilities than just expecting this market to fall over and die,” Jack said. “Nothing is telling me that is what this market wants to do.”
Watching market movement above 3,950 on the ES is Jack’s focal point in the near term.
“If things aren’t just completely falling apart and things are not ugly, it’s kind of a window to say, ‘Okay, well, this market sure is trying,’” Jack said. “It has certainly been trying since the October low and retested the February low as well. And we’re still bouncing, still pretty healthy above 3,950.”
Despite his bullish outlook, Jack understands the market can shift quickly and he is always ready to adjust as needed.
“So much data to look at,” Jack said. “It never ends. It should be very interesting to see where we end up.”