Targeting Leading Stocks Heading Lower

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Simpler Trading Team

Jun 28th 2022  .  6 min read

Targeting Leading Stocks Heading Lower

2022-06-28

In this article:

  • Pandemic darling continues downside tumble
  • End of quarter actions set up more volatility
  • Are futures an “out” for traders?

Any bear market bounce to start the week was shut down well before the closing bell on Tuesday.

After a sprint higher across the board to open the session Tuesday, the S&P 500 – considered the broadest measure of stocks – tumbled to close 20% down for the year after negative economic data was released. The Nasdaq and Dow also drifted further to the downside as the bear market gained strength for the summer.

Market performance so far this year has been so low that analysts have to look back for decades to find comparable low levels.

Government and economic influences have not contained rising inflation as traders try to balance staying active in the market while not being blindsided by sudden market moves.

This is a caution-worthy week as the second quarter comes to a rough close in the stock market.

(Check out the free video, above, for insight into trading this changing market.)

Pandemic darlings headed lower?

Simpler’s traders are working angles of opportunity within the sharp twists and turns of this volatile market.

One of the pandemic darling stocks of two years ago was Roku, Inc. (ROKU), a digital television streaming platform. Since then the stock has lost its luster and most of its value. In current market conditions, traders have their eyes on shorting this ticker.

For example, last week ROKU rallied into key areas of resistance near $100. Then on Monday it stumbled to start the session and then caught a bounce before rolling over and getting slammed all the way back down to below the 50-day simple moving average. This was a 4% loss on the day.

Worth noting in this example is how ROKU rallied higher into key zones which opened the stock to possible short plays as it fell along with the overall market. ROKU closed Tuesday at $89.33, down 5.72%.

More downside movement is anticipated as ROKU heads into reporting second quarter earnings on August 3 at the tail end of earnings season. Historically over the last few years, especially the last 12 months, ROKU has a tendency to fall in price going into earnings.

The shadow of the first quarter where earnings reports were strong, but the market didn’t like the results may still be chilling to retail traders.

In past bull market earnings seasons, traders could focus on bullish, upside moves into earnings reports that beat expectations, followed by positive price moves post-earnings.

Bullish expectations have been replaced with apathy toward most tickers leading to disappointment over earnings reports as investors take into consideration weak guidance from companies moving forward.

ROKU is just one example of stocks that are in contrast to the previous bull market when traders focused on price running higher into earnings. This bear market shift has prompted Simpler’s traders to watch for downside movement that can be short opportunities.

One short play that worked well for a Simpler Trading team member came from another former pandemic darling – Nvidia Corp. (NVDA).

This technology stock moved to the top of a resistance structure on Monday and Chandler Horton, Director of Day Trading Strategies, executed a setup to ride the higher price down to support and liquidity on Tuesday. Chandler exited the trade for an 80% gain on puts targeting the $160 strike price. This trade was timed with the Nasdaq also failing at major structure on the day.

In the market today, the Dow dropped to 30,946.99 points to lose 1.56% (dropping 491.27 points on the day). The Nasdaq gapped down to 11,181.54 points for a 2.98% tumble while the S&P 500 was hit hard, down 2.01% to 3,821.55 points.

Do you want to trade with a professional?

This stock market has presented some testy waters for retail traders, especially those looking for a way to trade with a professional.

Simpler Trading put together an online community like never before – a free trading room. This online training chatroom is designed to allow traders to experience the insight from a professional trader during live market hours.

There is no cost to join, and this opens an opportunity to meet our team of traders working to share what they experience daily as stock market retail traders. Learn more today.

End of quarter sets up volatility

Following a sudden gap down headed into midweek, traders should be wary of several “end of quarter” market influences.

These events will likely stir the pot of volatility and include:

  • SPX rollover – The S&P 500 (SPX) drop should be on traders’ radar as “big money” – institutional investors – look to sell and push out further any quarterly expiration contracts. Big moves to the downside could be influenced by these actions.
  • Options expiration – End of month options expiration Thursday can create volume and volatility as options expire and premiums are affected.
  • S&P 500 rebalance – This can create swings in the market as big funds and firms need to rebalance portfolios heading into a new quarter, and stay within rules regarding the number of stocks held and in which sectors.

Simpler’s traders are in a “hurry up and wait” mindset as they watch for short opportunities while resisting urges to get aggressive as volatility builds into the end of the quarter.

The market for 12 years enjoyed a state of extreme positive drift, but that trend is over. Market conditions now are more of an historical market with consistent volatility expected as “normal.”

Should day trading be an option?

All the chaos of this market has created a new level of stress for traders.

One strategy to consider is day trading. While day trading is considered a higher level of risk, the team at Simpler Trading understands what traders go through when the market maintains an extended level of uncertainty.

Simpler Day Trading allows members to follow experienced traders as they “get in, get out” with trades that limit capital exposure. What is appealing to traders in this market is the community of professional traders delivering live-trading insights during market sessions.

Avoid the stagnation of trading alone, and check out this daily training and learning option.

Futures trading targets ‘inflection’ points

Traders trying to work their way through unstable market conditions may want to take a look at futures trading.

New and experienced traders can gain a new perspective on balancing risk with market opportunities. Joe Rokup, Managing Director of Commodities and Equities at Simpler Trading, has focused on three chart patterns that revealed profitable targets in futures all year.

Joe knows that bull markets are in the rearview mirror. He focuses on signals early in the daily session that let the market wear itself out on the way to hitting his price targets.

The strategy isn’t fancy, but it is effective with key “inflection” points being exposed across the market. Joe uses these signals to combat market volatility and capture trade setups in both directions.

Consider developing a futures trading plan that fits your style and account size.