When Market Goes Sideways, Look For Money Flow
Where are traders looking to find trades in a sideways market?
Look for the money flow.
Following another uptick, this stock market presents new challenges for traders.
Stock market stuck in sideways trend
Today the market bounced higher, and tomorrow it could retreat as the sideways trend that began last year carries over into 2023.
“We’re in a situation here where we’ve been range-bound since June,” said John Carter, Founder of Simpler Trading. “I think we’re going to be range-bound for quite awhile.”
From the outside looking in, this dynamic may seem positive but seasoned traders know this can be a challenging trading environment.
The challenge is handling how the market reacts to the next round of economic news.
Stock market participants pushed the stock market higher across the board on Wednesday with widespread confidence that the U.S. Consumer Price Index (CPI) report release on Thursday would indicate cooling inflation. This could be a signal for the Federal Reserve (Fed) to cool its stance on fighting inflation by continuing to raise benchmark interest rates.
“It looks like inflation has peaked and is coming off and it looks like there are signs the economy is going to slow for next year,” John said.
John anticipates the Fed continuing its hawkish monetary policy, but less aggressively while stocks could retest highs before moving lower again.
In this range-bound market, there is no guarantee that the CPI will deliver tomorrow what traders want.
Adapt trading plan to follow money flow
John plans to follow his trading plan of looking for the money flow, which won’t be found where it has been in years past.
He gave the example of the much lauded technology sector and particularly the once high-flying Tesla, Inc. (TSLA) stock where he managed several seven-figure trades in recent years.
“My take is that this is the kind of stock that does great in a quantitative easing environment,” John said.
Tesla stock skyrocketed during this period which occurred in years past where the Fed took interest rates down to zero in an effort to spur economic growth. By contrast, the Fed has been raising interest rates the past year in a strong effort to curb inflation and the economy – quantitative tightening.
“In an environment like we have right now, Tesla stock is coming back to what I would call a normal valuation,” John said. “I don’t think Tesla – for years – is going to be doing much other than consolidating and digesting what’s happened. I look at that for most tech stocks.”
“In this environment the money is not flowing into tech stocks,” John said.
John anticipates that the Fed will have to cut interest rates once the economy slows down, likely in 2024, and then tech stocks such as Tesla may be positioned to move higher again.
Basic analysis tracks uptrends in stocks
Finding the money flow in the stock market amounts to getting back to basics in stock chart technical analysis.
To find the money flow, John suggested looking for 52-week highs in stocks.
“There are stocks that are in uptrends and at all-time highs,” John said.
“You’ll see where money is flowing,” John added. “If you’re looking for long trades, focus on that. If you’re looking for short trades, focus on the indexes and keep it simple.”
John, who founded Simpler Trading with the idea of making trading, well, simpler, put together a strategy and set of tools last summer that he now prioritizes in his daily trading.
This method is all about getting “back to basics” and taking advantage of fast trade setups. No matter the direction, or lack of direction in a sideways market, John focuses on taking a few quick setups and walking away happy.
John targets 1%+ daily gains with zero overnight risk, and this “quick hits” method has launched his trading in 2023. To join John in getting “back to basics,” check out his strategy.