This Week Is All About Trading A Bear Market

In this article:

• Market values drop across the board
• Calendar this week full of caution
• Look to a broader view of the market

Mark your calendars, this week is setting up for a wild ride.

Traders are trying to solve this flip-flop market which keeps hinting at rallies while pushing further to the downside. How do traders work this bear market, and what must be watched this week?

First, pay attention to market-related calendar events. Second, don’t focus too tight – think about a broader view of what is pushing this market.

Trading into a bear market

All three major indexes have fallen since the first of the year requiring traders to shift to trading into a bear market.

The Dow was down 12.5% through Friday, the Nasdaq down 24.5%, and the S&P 500 has declined 16.1%.

Despite a brief rally Friday and mixed performance Monday where the market flirted all day with a rally, all three indexes struggled.

The Dow closed at 32,223.42 points to finish just above flat, up .08% (adding just 26.76 points on the day). The Nasdaq dropped to 11,683.28 points to lose 1.03 % while the S&P 500 slipped .21% to 4,015.51 points.

Thinking outside the percentages, as an example, leading stocks in the S&P 500 have lost more than $7 trillion in market value since January with almost half that in technology stocks.

This tags into concerns that Federal Reserve actions won’t be enough to lower rising inflation which in turn pushes prices higher in many areas. The term “inflation” was cited by 85% of S&P 500 companies in post earnings conference calls.

Inflation worries aren’t going anywhere anytime soon.

While traders are looking for a solid relief rally to reverse a downtrending market, so far the market hasn’t been able to sustain any substantial uptick into 2022.

This week is expected to be much like last week with various market-affecting events taking place. From the Federal Reserve to home sales reports to foreign currency updates, the market is facing headwinds from many directions.

Here are some events and reports to watch:

• Monday – European Economic Forecast; U.S. manufacturing numbers; British and Australian central banks
• Tuesday – Federal Open Market Committee (FOMC) – James Bullard speaks; retail sales numbers; European Central Bank President Christine Lagarde speaks; FOMC President Jerome Powell speaks; FOMC Loretta Mester speaks
• Wednesday – British pound and Canadian dollar consumer price index reports; crude oil numbers; Australian employment stats
• Thursday – U.S. home sales numbers; U.S. unemployment report; natural gas inventories update
• Friday – Australian elections; European consumer confidence numbers

Leading into this week, technical signals on stock charts were showing a common pattern – a weekly hammer candle, large volume, positive hourly momentum divergences – often at key longer term levels.

This could be backed up by a weekly squeeze showing in the S&P 500 (SPX) that hasn’t fired short. If this goes, Simpler’s traders are looking for five to eight weeks, or more, of downside momentum. The play here, as mentioned last week, could be shorting bounces on the pullback.

Market momentum across the board appears bombed out, so signs of early capitulation are present in many markets at once. The problem for traders is there are no actual triggers in most cases which is forcing a cautious “if this, then that” strategy.

Scan for stocks during trading events

This wild market means price action moves quickly, and traders need an automated tool to track key stocks.

Stock scanners work within computer software to evaluate signals on a stock chart that follow specific targets set by the trader. Computers can track many companies around the clock and maintain a trading watchlist focused on a trader’s personalized setups and strategies. This helps traders quickly disregard stocks they don’t want and concentrate on stocks with potential.

Will a market catalyst appear?

Monitoring the market through calendar events into midweek, and beyond, will be required as traders search for a catalyst that propels the market into a directional move.

For bulls holding out for uptick moves, here are three assets worth watching:

• U.S. Dollar Index – Maintaining a cleaner, long-term trend over most other assets across the markets. Charts are indicating a quarterly squeeze potential with possibilities for holding for some time. As it breaks higher, the market could go sharply lower.
• Crude Oil – Another watchlist must for Simpler’s traders, has chart signals showing strong structure with consolidation that could push into the next leg higher. Watching for bullish squeezes across most metrics.
• Grains – Focus is wheat, as Simpler’s traders have noted before, due to European conflict affecting wheat farming. Wheat appears to be holding structure with a chart pattern showing strength. Corn is also bullish.

The overall market is “bouncy” much like last week across the board, while no pronounced shift higher or lower is forcing traders into the “if this, then that” strategy.

There is still potential for a failure in support and the market breaking sharply down.

Day Trading In Real-Time During Market Hours

The market is stressful enough without working through all the chaos alone. The team at Simpler Trading understands what traders go through when the market is uncertain like today.

We developed Simpler Day Trading where traders can follow experienced traders as they “get in, get out” with trades that limit capital exposure. Like any trading, there are risks associated with day trading.

What stands out for traders in this market is our community of professional traders delivering live-trading insights during market hours and access to our learning center. Check it out today. 

Check earnings for fast action, future setups

Earnings reports for the first quarter are tapering off for the most part, although there are significant companies reporting this week and next.

There are plenty of earnings to consider this week. The earnings reports range from big names in retail to banks to lesser-known technology tickers.

Earnings plays should be planned leading into the reports, but there can be opportunities for trading after earnings reports are released. The key is to keep specific companies in the watchlist and follow through when indicators show potential trades setting up on the charts.

While earnings season is almost in the rearview mirror, not all the news is poor among companies which have reported first-quarter results.

The energy sector has reported the highest year-over-year earnings growth due to higher oil prices while select metals and the agriculture sector are also reporting strong numbers. These commodity stocks tend to outperform during periods of high inflation.

There are three phases traders should understand when trading earnings season.

Here are the key phases:

• Before earnings
• Earnings report
• After earnings

Each phase has advantages and disadvantages for traders working toward the highest potential for a winning setup. While earnings season is still in play, traders can learn to follow all three phases and develop a profit-focused strategy.

Learn more about trading earnings season during this active time period.

Traders should be prepared to continue grappling with bear market uncertainty.

Inflation is expected to push higher while the Federal Reserve begins a more aggressive monetary policy to fight back. Add in rising interest rates, a strong U.S. dollar, and the ongoing war in Ukraine, and the market is facing constant pressure.

Also, the Volatility Index (VIX, or fear index) hasn’t retreated from its record spike higher which points to continued choppiness in the price action of the broader markets. Throw in Federal Reserve officials speaking at multiple events this week (with all ears listening for any hint of a shift in policy) and market pressure may increase.

Until there are solid signs that inflation has peaked and anxiety from market participants has retreated, traders will likely face elevated market volatility for some time.