Stock Chart Technical Indicators Flash Crash Signals


Simpler Trading Team

5 min read

Stock market movement this week is déjà vu for traders anticipating something other than the ongoing chop of uncertainty.

This environment has the bulls corralled and the bears active with traders waiting for another rapid-fire week of economic data releases.

This leaves little time for traders to be complacent as this market may move suddenly and sharply in any direction.

Stock chart technical indicators warn of possible drop

Stock chart technical indicators are eerily similar to last week, according to Sam Shames, Vice President of Options at Simpler Trading. He expects bearish market dynamics to continue with expectations of a continued downtrend.

He sees hawkish Federal Reserve (Fed) monetary policy as the controlling element in this market.

“The market will not stop panicking until the Fed panics,” Sam said. “At least so far the Fed has no reason to change course until the data falls off a cliff or something somewhere else blows up.”

Sam is seeing all sectors (save maybe energy) across the stock market suffering in this environment.

“There is nothing, not even defensive (sectors) like utilities or staples, that looks good,” Sam said. “This is on par with what we have been seeing. This is not bullish.”

Sam cautions traders to consider that these stock market internal signals are hinting at a possibility of a crash if something doesn’t break the cycle.

More rough waters ahead in stock market

Sam continues to see breakdowns in stock market technical indicators for even the most conservative sectors such as health care, utilities, and consumer staples.

The technology sector is a concern for traders who looked to this “darling” sector as a trading hotspot through the pandemic recovery.

“The electric vehicle index continues to look like it could fall off a cliff with the primary driver being TSLA,” Sam pointed out. He is looking at this sector as a focal point for short trade opportunities if the market continues its decline.

Sam explained how continued downward pressure in the market is of deep concern for traders.

While the S&P 500 rose 1.5% last week to close the week back above its June lows, the leading market index dropped again to start this week.

“On the indexes, we see a monthly ‘kiss of death’ pattern on the SPX,” Sam said. “The ‘kiss of death’ pattern is breaking below the monthly 21-day exponential moving average, popping back to test that level, failing the retest, and then making a lower close.”

The last time the stock market experienced this pattern, Sam pointed out, was in 2008 when the market crashed.

“The indexes continue to ‘battle’ at their respective weekly 200-day simple moving average,” Sam said. “This is, of course, to be expected as it is the final stronghold of the bulls. When they lose this line in the sand they will be pushed back tremendously, so it is imperative for them to defend the line. It is very unlikely they will be able to.”

Finding trade targets in a volatile market

Sam continues to hold a falling target in the SPX (S&P 500) at 3,400, however, he believes even this is optimistic. He continues to revise his estimate weekly as the market shifts and twists in its current cycle.

Two areas of concern for Sam are wild action in bonds and the Volatility Index (VIX).

“Bond volatility is showing an ideal trend and a weekly squeeze,” Sam said. “It is unreal how bad those signals are and the implication that they are just getting started.”

“The VIX signals going into this week actually look wildly dangerous,” Sam said. “The weekly

histogram is pointing higher. Volatility as measured by /VX is showing a monthly squeeze histogram pointing up.”

“This is very rare,” Sam said. “The previous example was before the Covid-19 pandemic started and before that was 2008.”

He pointed out a market historical fact that no bear market has bottomed with VIX below 40. The VIX has been chopping up-and-down from 20 to near 35 for months.

Sam is concerned about how all these stock market internal signals are lining up at once.

“These are incredibly rare signal alignments,” Sam said. “Meaning that any one of these alone isn’t a problem, but it is a problem when they all collectively align like now.”

Traders must continually adapt to market uncertainty

Sam once again has adapted his trading plan to what the stock market is presenting.

“In this market, for myself at least, I will no longer entertain bullish swing trades,” Sam said. “I have written those out of my trading plan completely.”

“It’s actually quite simple,” Sam said. In a bear market I cannot be long anything for a swing

Trade. I can day trade long, but I cannot hold long trades for longer than one day.”

In a bear market like this Sam is only allowing himself swing trades to the short side along with day trading long or short.

He encouraged traders to reassess their trading plans according to current market conditions to manage risk according to their tolerance level.

Simpler’s traders are watching key events this week that include: earnings reports; U.S. Producer Price Index (PPI) and Consumer Price Index (CPI) numbers (Wednesday and Thursday, respectively); FOMC minutes released Wednesday(from September meeting), and University of Michigan Consumer Sentiment Index numbers on Friday.