Working Stock Market Action With Eyes Wide Open
In this article:
- Stock market trying to find its footing
- Fed looking to ‘destroy oil’
- Taking deep breath for what’s ahead
After stair-stepping down through the day, the stock market attempted to rally into the close before spiking further down in the last minutes.
The market closed down for the fourth consecutive day. Market activity was odd on the last day of the month compared to the past, and the first of the month tomorrow will likely not be any less uncertain.
Add in a long holiday weekend ahead and market movement may leave traders scratching their heads.
Working stock market with eyes wide open
After the initial opening bell spike, the stock market walked down all day Wednesday.
At times market activity was perplexing as Simpler’s traders shared their viewpoints live in the Simpler Options online trading room.
“As horrible as the internals have been all day, I’m surprised the SPX (S&P 500) isn’t down 100 points,” said John Carter, Founder of Simpler Trading, during the final hour of trading.
In the market today, the Dow closed at 31,510.43 points to drop .88% (dropping 280.44 points on the day). The Nasdaq fell to 11,816.20 points for a .56% slip while the S&P 500 lost .78% to 3,955 points, losing 31.16 points on the day.
John pointed out that trading below 4,000 on the SPX for two days in a row is harsh for long-term positions.
In a market where all the news is bad, John is cautious on the short side, but not sticking his head in the sand.
“The main thing with this market is to look at it with eyes wide open,” John said. “It’s a market trying to find its footing.”
He anticipates there will be opportunities while not getting too bearish.
Policy watch: Fed trying to destroy oil?
A lot was said today during a speech from the Federal Reserve (Fed) and John weighed in on the topic as the market held to the downside.
John has said before that the Fed is looking in the rearview mirror for data assessment and doesn’t necessarily follow the forward-looking market.
He doesn’t plan to fight Fed actions, but he watches policy closely.
“The Fed is trying to destroy oil,” John said. “It’s impossible to have 2% inflation with oil this high. The Fed wants oil lower. You do that by destroying demand. Oil is their number one target.”
Oil closed at $88.85 today, and John anticipates oil falls back down to $75 to fit Fed plans.
“They target oil by putting us into recession,” John said. “The way you kill inflation is with a recession.
“They’ll never say that, but that’s absolutely what they’re doing.”
He pointed out there hasn’t been a recession with inflation since before 2000 – long before most traders today started trading, – and usually recession comes with deflation.
The pattern fits how the market today was acting odd, historically.
More volatility may mean larger trades
Heading into a long holiday weekend, John is looking at a broader picture of market movement.
“Let’s just take a deep breath going into tomorrow,” John said. “Let’s balance out some of the bigger picture options relative to the price action. We’ll see what’s shaking.”
He noted that August tends to have some of the slowest volume in trading and September typically tends to increase trading volume. This is expected to heat up heading toward the fourth quarter.
“With September we typically get more volatility and more volume which, for me, typically means larger trades if the setup is right,” John said.
To learn more about how Simpler’s traders plan to work this market, check out Simpler Options.