March Brings More Madness From Volatility, Fed

Everyone expects March to bring a fresh, new season of life, but the stock market rolled in a more cold and dreary sentiment to kick off spring.

All three major indexes struggled to open the month with the first two days bringing mixed clouds and sunshine to retail traders.

And traders must be wary of more economic data and central bank actions ahead in the next couple of weeks.

Traders can expect ‘more of the same’ in market

A shaky start to the month prompted pro trader Bruce Marshall, Senior Director of Options and Income Trading at Simpler Trading, to comment that this stock market is “more of the same.”

Daily action in the market sees prices go sharply up, sharply down, and then repeat, often within a matter of hours intraday.

“It’s impossible to get on the right side of this thing for long,” Bruce said. “It makes it very, very challenging.”

Bruce, who has traded for more than three decades, has watched the stock market over the past few months trend lower. But it’s not a market where he wants to go short for too long. He sees staying in a one-direction trade too long as reckless because of the many, and often, sharp reversals higher.

Market action the past two days has Bruce anticipating the possibility of a pop higher across the market, but any one factor could set the market reeling again.

The stock market popped a bit today with the Dow closing at 33,003.57 points to jump 1.05% (adding 341.73 points on the day). The Nasdaq climbed to 11,462.98 points for a .73% gain while the S&P 500 notched higher by .76% to 3,981.35 points.

The spike across the board was largely attributed to a central bank official at a speaking engagement saying slow and steady rate hikes were fine with him.

It’s impossible for trader’s to know what’s going to happen in the next few hours of any session, much less predicting weeks or months ahead. Bruce anticipates the likely scenario is the market will bounce higher and then trail downward again.

“This market is so tough to read,” Bruce said. “And I’m usually pretty good about reading the market. The way it is and with big data points coming out it’s just really tough.”

Economic news, Fed foster uncertainty

Retail traders need to be aware of economic data and Federal Reserve (Fed) actions ahead.

Key March data points start next week on Friday with the nonfarm payroll report and continue through mid-March.

The next U.S. Consumer Price Index (CPI) report is set for release March 14 followed by the U.S. Producer Price Index (PPI) on March 15. The next Federal Open Market Committee (FOMC) meeting – a regular meeting of Fed central bankers – is set for March 21-22.

As is the current custom of central bank (Fed) officials, they continue to speak at events and opine about how they anticipate Fed actions ahead. Some have openly declared that they are open to more rate hikes and possibly increased basis points.

At the last FOMC meeting the voting members raised the federal funds rate by 25 basis points, which raises interest rates on consumer products.

Any reports of higher inflation – even inflation holding strong at 40-year highs – or interest rates climbing at a faster rate will not be good for the market, Bruce noted.

“We could go a lot further down,” he said.

Bruce doesn’t want to appear to be calling for gloom and doom, but the stock market has plenty of room to go down and not reach lows from the past few years. Bruce works to be realistic when looking at the bigger picture of the market and maintain his trading plan.

“Keep trading this on shorter time frames and smaller risk and just be very careful in this market,” Bruce said.

Shorter time frames key to pro’s success

Trading on shorter time frames has been the key to Bruce’s successful trading in 2022 and into this year.

The ability to trade zero days to expiration (0DTE) options on the S&P 500 (SPX) opened a new arena of daily trading for Bruce.

Unlike weekly or monthly options, 0DTE options are usually found on a stock or exchange traded fund (ETF) with high liquidity. Traditional stock options contracts will have monthly expiration dates on the third Friday of each month. 0DTE options contracts expire daily at the close of the session. 

Bruce targets 0DTE setups that let him work trades for a few hours or less and he takes advantage of the short time frames.

“What that means is you’re basically getting the wholesale price on the option versus a retail price,” Bruce said. “There is no time value (theta) left on the option because there is no time left on it.”

These 0DTE trades can be more cost effective for retail traders who only have to wait a couple of hours to find out if the trade fails or creates a profit.

Multi-leg setups ‘tolerate’ market swings

Bruce hasn’t allowed this challenging market to keep him from following his trading passion.

In past years Bruce was primarily a long-term trader who would hold trades for days or weeks. Adapting to this fast-cycling market was necessary to continue his success as a trader.

Most of his trades today consist of multi-leg trades almost exclusively on the S&P 500 (SPX). He works double calendars, iron condors or double diagonals – setups that may have several hundred points of width from low to high in price.

“I can tolerate a lot more movement in a trade,” Bruce said, knowing he can’t be wrong for very long, not even a few hours, in this market.

“I’m always very aware and concerned about the risk I have versus the reward I’m trying to get,” Bruce said.

‘We’re trading this thing’

Wild swings in the market haven’t deterred Bruce from continuing decades of successful trading.

“I’m not trying to pick one side or the other (for a long term trend),” Bruce said. “I don’t think that’s possible in this market right now.”

Instead of picking a directional move in this market, Bruce is trading a range (with the multi-leg setups. He can adapt as the market moves up or down and close trades quicker to protect capital or take gains.

“We’re trading this thing,” Bruce said. “Trading shorter time frames is working. It’s working well this year. But this market is tricky. Be careful out there. Keep your size small. Risk a little to try to make a lot. Have a reasonable risk to reward.”

Follow Bruce’s trades in his live online trading sessions. Get access now.