Nightmare on Wall Street? … Traders Were Spooked

Traders navigated a frightful reality Wednesday as the market sell off continued and indexes closed in the red across the board.

The Dow closed at 33,587.66 points to fall 1.99% (dropping 681.50 points on the day). The Nasdaq dropped to 13,031.68 points for a 2.67% tumble while the S&P 500 crumbled 2.14% to 4,063.04 points.

May is typically a weak month, partly from the adage of “sell in May and go away” along with a market tendency to be overextended following a seasonally strong run into earnings after the first quarter. This year there’s the added fear of inflation and a steady stream of freshly minted stimulus dollars moving through the economy.

News pundits are hammering the airwaves and digital landscape with cries of such elements undermining the economy and the stock market.

Whether or not the alarm over these factors is justified or hyped is a hot topic of debate. The reality is traders gave into fear and the selling hit the market for a strong pullback for the midweek session.

Was this really a “nightmare” on Wall Street… or an exciting new phase?

Simpler’s team considers this a trader’s market.

Every stock or sector needs to catch its breath, and stocks across many sectors are out of breath. The expectation is that the stronger assets will rebound for a renewed rally.

This isn’t considered a classic “buy the dip” environment, but a phase where opportunistic traders with the skill and experience can execute trades in any direction the market shifts.

Chart patterns and signals aren’t yet clear that key rally points have been met (staying cautious for further extremes). The market may need more of a breather before buying opens up again.

Traders are also looking for opportunities — long and short — from a bigger picture viewpoint such as countries and currencies. Sometimes to get into the action it pays to look outside the box… expand the trading plan.

There is much to this market that can fuel a trader’s optimism after realigning based on what the market is giving today.

We Saw: Continued selling across the market — 

• All three indexes closing down
• Inflation fears, news hype impacting decisions
• Counterpoint seeing market action as growing pains

We’re Watching: Cautiously for hard signals to buy into the action —

• Working the short side with caution
• If bearish, make plans for quick exits
• Few setups as we hold for patterns to develop