Stock Chart Patterns Reveal Short-Term Trades
Like an emotion-fueled weight loss resolution, the stock market rally to start the new year relapsed midweek as positive gains faded fast.
Nervous traders shied away from taking chances in the market as technology companies started layoffs, mixed earnings reports continued, and the latest inflation report didn’t spark much enthusiasm.
All three major indexes were down today with the Dow dropping more than 613 points after shedding 391 points yesterday.
Despite the down day, this may be the pullback that traders are looking for before another strong rally.
Expect more sideways stock market price action
The stock market has been following an almost year-long downtrend, according to John Carter, Founder of Simpler Trading. This downside pressure is marked by sideways price action filled with spurts of rallies toward the 200-day simple moving average (SMA).
Rallies inevitably lose steam – similar to today – and pull back as the stock market chops along.
Despite news media and investing experts calling for “gloom and doom” with an impending recession, John doesn’t expect dire consequences, at least not yet.
He is watching squeeze signals that could again push price momentum to fire long, breaking that almost year-long trendline near the 200-day SMA. As today’s market action indicated, any break higher is not expected this week but would be a target of interest into next week.
The rollover before the rally could be moving the market to a point where the S&P 500 could bounce upward to 4,200. Then the market is expected to repeat itself in this sideways movement that leans bearish, John said.
“Realistically, this is our life for 2023,” John said. “We’re going to be stuck in this range for quite a while.”
Learn to spot chart patterns from ‘guru’
How does John – a pro trader for three decades – plan to play this up-and-down, uncertain stock market?
He is sticking to a trading plan that he adopted last year – target short-term gains and not hold out for big plays.
John has a goal of making 2% a day while focusing on personal discipline. This means that if he makes the target 2% early in the day, why not stop for the day? He doesn’t want to push beyond that target and get caught up in emotional trading.
And, the way the market is moving, John isn’t afraid to learn more even after years of trading.
Every trader has heard of technical analysis of stock chart patterns – head and shoulders, double bottom, bullish, bearish, hammer. John is revisiting chart patterns that can reveal market movement.
“It’s not that they’re hard to see,” John said. “Being able to spot one and then being able to understand all the nuances of how they work, that’s the key.”
“If you understand the chart pattern that’s setting up, you’re going to get more of an edge because you’re going to know what traders are doing,” John said.
Spurring John to revisit chart patterns is Chris Brecher, Senior Managing Director of Stocks at Simpler Trading. Chris has been sharing with traders his chart pattern prowess developed over a 40-year trading career.
“Chris is the pattern guru,” said John. “He has shown me stuff with chart patterns that I never even knew existed.”
Chris put together an all-new training program that shows traders how to use chart patterns as an advantage in any market.
Chris’ system identifies probabilities where trade setups based on patterns will work. This helps with shorter-term trades which are dominating setups among traders in this sideways, non-directional market.
Yesteryear stocks don’t make 2023 playbook
Favorite stocks of yesteryear aren’t in the playbook for John into 2023, particularly technology stocks where he made seven-figure trades in the past three years.
“Tech is a wreck and I don’t anticipate anything too interesting there for the foreseeable future,” John said. “It’s had a great rally, but it will be a laggard.”
While John doesn’t expect a stock market implosion like the crash in 2008, he does expect the economy to slow down this year.
“Remember, the stock market is well aware of that and typically the stock market bottoms six months before a recession ends,” John said. “I’m not looking for something where we crash into the abyss, at least in the first half of 2023.”
John said a “crash” has already occurred in the technology sector where many high-profile, high-value stocks such as Tesla, Inc., and Apple, Inc. lost value last year by as much as 70%.
“That was a tech crash,” John said.
Some stocks, such as Apple, are gaining strength. Still, John isn’t pursuing that sector or others for long-term bullish swing trades.
He continues to work shorter-term trades targeting that 2% daily gain, and watches for stocks showing strong uptrends and volume.