S&P 500 Down – Worst Quarter In Years

This market has surprised many traders, including the S&P 500 ending the first quarter down – the worst in several years.

The S&P 500 crumbled 1.57% to 4,530.41 points. The Dow closed at 34,678.35 points to fall 1.56% (dropping 550 points on the day). The Nasdaq dropped to 14,220.52 points for a 1.54% tumble.

S&P 500 Falls For Losing Quarter

Highs of the S&P 500, the index that tracks 500 large companies in the United States, have blown out shorts and stops along the way to regaining prior highs and even new all-time highs.

Yet, it still closed with a terrible quarter.

Will the S&P push even higher? It may not be that far away, despite recent setbacks. Simpler traders know that in an environment like this – anything could happen.

Traders might even see a departure from recent drops in the S&P 500 as the index makes new highs and the Nasdaq struggles. Or the S&P 500 could fizzle out after showing off some strength. If that occurs, the index could show serious weakness again. New highs in the S&P or a pullback… it’s a toss-up.

With the end of the quarter on Thursday, Simpler’s traders are focusing on opportunities within all the market volatility – while exercising an abundance of caution.

Using proven technical analysis strategies, traders let the market reveal opportunities. Having skills and trading tools in place to find opportunities is how the Simpler team targets winning trades.

Simpler’s traders are focused on key market areas in this environment – the technology-laden Nasdaq, and similar sectors in the other indices.

While there are opportunities throughout the market, there are plenty of situations where traders can find the market moving against their trades.

Simpler’s traders follow trading disciplines and strategies considered their “life boats.” Market waves can easily crush traders who don’t have a trading plan or proven strategies for the market conditions.

For Long Or Short Trades… Be Cautious

This market – which has tempted traders with downward moves – is a classic dream killer for short trades.

Short trades are when traders believe the stock price will fall. But in this market this can be dangerous. Consider the Nasdaq. As traders look at the previous high on the charts, the technology index appears to be rallying back up to that level – blowing out all the shorts and stops along the way.

Simpler’s traders don’t anticipate the Nasdaq will reach any new all-time highs in this market environment, but this remains to be seen. Momentum, or a lack of it, could be the quicksand that keeps the index levels in check.

Traders considering short setups in this market might want to consider what is happening in commodities.

With a combination of a hawkish Central Bank in its quest to stifle inflation and the ongoing war in Europe, traders are seeing the impact on commodities, like crude oil and grains. This short-covering run requires traders to maintain focus on proven strategies more than ever without giving into fear of missing out on “fast moves” to the downside.

Find Trade Setups Without ‘Doom, gloom’

Stocks typically rally in a market environment where market participants “buy the rumor and sell the news.” Sound familiar? With all the hyped up “doom and gloom” news in the world, market participants are almost too keyed-in to the news. This can affect their decision process.

The question becomes, “With all the ‘news,’ what happens after the first quarter ends?

Simpler’s traders will focus on the charts for trade setups.

Traders could anticipate a substantial sell-off to occur – at least to the 21-day moving average (MA). Moving averages are used to identify the trend direction of a stock and determine support and resistance levels. An upward trend in a moving average would generally signify an upswing in the price or momentum, while a downward trend would be seen as signaling a decline.

The moving average is a lagging indicator because it is based on past prices. Traders find that predicting trends is no easy process. It is impossible to predict future market movement.

Using technical analysis can give traders the information they need to make better decisions.

Referring back to the Nasdaq, the technology index has been more vulnerable to this volatile “news” or “sentiment” environment than the other major indices. At the 21-day MA, the technology index could reveal its ugly side. Because of this risk, it makes sense to default to chart signals when trying to determine market – index or stock – direction.

What To Expect From Technology Stocks

In a market environment that experienced huge successes with pandemic-fueled companies (like online movie streaming services), traders might consider whether some of those stocks are worth a second look.

Stocks in Zoom, Paypal, and Shopify began to rally this quarter-end after falling silent for some time. As these tech companies saw price action move to the upside, traders remembered the dot-com bubble of 2000-2001. 

Speculative investing and low interest rates triggered an overbought technology market with unjustified high prices. In 2001, stocks lost 100% of their value from the runup. The technology bubble burst, price action went back and forth, and then finally corrected.

This year traders have watched as many technology stocks lost 70-80% of value. While the market is seeing a resurgence in share prices, this rally may be window dressing into the end of the quarter before a shift.

Such speculation could cause traders to dump long trades (positions to the upside) as the quarter ends. This means next week, the first full week of April and the second quarter, the technology stocks could move back to the mean stock price – against long positions.

Next Week – New Quarter, New Opportunities

Simpler’s traders are cautious when considering a rally to new all-time highs (especially with recent losing performance in the S&P 500). Price action might even move closer to new lows with a short-covering rally.

Simpler’s traders are avoiding short trades until a clear trigger appears on the charts.

Some technology stocks have continued an upward trajectory, with companies such as Google (Alphabet), Microsoft, Apple, and Tesla maintaining market positions. In contrast, buyers of Tesla are aware that they are one tweet away from being in the wrong position. Unfortunately, the “tweet factor” is a real concern with Tesla.

Simpler’s traders will continue to watch the S&P 500, but would like to see key technology companies make new highs. There is much in this market worth consideration.

Volatility is forcing traders to consider a much broader market view that includes outside influences – rumor and news. Simpler’s traders take opportunities where they can when the charts reveal solid signals. There are still stocks that might deliver opportunities for traders when momentum, index, and chart signals align.

Keep in mind that “anything could happen Friday.” The new quarter could open with market participants giving up on trades and leading to major sell-offs.