Traders Watching 2 Stock Market Internal Signals

In this article:

• Market not out of rough waters
• Internal market signals offer insight
• No urgency to jump into volatility

Inflation has its grips on the economy and this market as traders work through a volatile market that is more bust than boom.

Any expectations of inflation subsiding soon should be curtailed. Even if inflation loses its grip, the next likely rotation in the market is from inflationary to deflationary stocks, if not an outright crash.

Following the long weekend, traders should keep their eyes on Federal Open Market Committee news this week, and dig into market signals for direction into trading this market.

Monitor these two stock market internal signals

What type of market signals are helpful in this market?

Simpler’s traders are watching market internals, specifically $ADD and $TICK. (These symbols are used like stock symbols in online trading software). Take a look at how to follow these internals:

• $ADD – Advance/Decline Line (ADD) indicates whether stocks are trading above or below their prior close. This internal signal defines a sense of overall movement in the market. When reading the $ADD indicator, above zero (positive) shows that most stocks are up for the day, i.e. a green day. When $ADD is below zero (negative) then most stocks are moving lower for the day, i.e. a red day. Think of $ADD as a steering wheel in a car pointing the wheels of the market in a specific direction.
• $TICK – This measures upward or downward movement in price for a security, i.e. how fast tickers are bought and sold. Keeping with the car metaphor, think of $TICK as the gas pedal affecting how fast price is moving. Simpler’s traders target levels and zones shown by $TICK – zero shows the market chopping sideways; upper zones show from $600 to $1,000; and lower zones show from -$600 to -$1,000. In bear market conditions (lower zones), continually negative $TICK indicates more selling than buying. Extreme buying is shown in the upper zones and price holding here indicates potential for an explosion higher.

Monitoring these two internal market signals together allows traders to target a confirmation of a move ($ADD) and gain insight into how fast the move will unfold ($TICK). This helps gauge the overall market and gain an edge in trading.

Traders who work to understand the combination of these indicators help define trends in a volatile market. This helps develop timing for when to enter and exit trading positions.

Day trading for ‘in and out’ setups

All the chaos of this market has created a new level of stress for traders.

One strategy to consider is day trading. While day trading is considered a higher level of risk, the team at Simpler Trading understands what traders go through when the market maintains an extended level of uncertainty.

Simpler Day Trading allows members to follow experienced traders as they “get in, get out” with trades that limit capital exposure. What is appealing to traders in this market is the community of professional traders delivering live-trading insights during market sessions.

Avoid the stagnation of trading alone, and check out this daily training and learning option.

Big three stock indexes bounce back

Various economic “authorities” and trading pundits are estimating that the U.S. economy will slump into a recession by next year despite a Tuesday rally higher in the market.

Breadth in the market is very low with only 2% of stocks in the S&P 500 now above their 50-day simple moving average. Last week the S&P 500 lost 5.8% which was not fully recovered by the 2.45% gain on Tuesday.

The Nasdaq also lost last week down 4.8%, as did the Dow, losing 4.8%.

The Dow climbed back to 30,530.25 points to gain 2.15% (adding 641.47 points on the day). The Nasdaq jumped to 11,069.30 points for a 2.51% gain while the S&P 500 rallied 2.45% to 3,764.79 points.

The bounce to start this week doesn’t indicate a market bottom in this bear market. The Volatility Index (VIX) is still trending higher at 30 which shuts off the likelihood that a market bottom is at hand.

Signs appear to point toward the VIX headed even higher (possibly up to 100 in the months ahead). Above 34-35 could lead to panic and one step closer to capitulation among market participants. These levels could lead to limit-down days.

Treacherous waters are on the horizon in this bear market.

Rapids ahead this week could include testimony before Congress this week from Federal Reserve Chairman Jerome Powell. His testimony Wednesday and Thursday could stir the volatility fray.

The market appears setting up for two volatile possibilities: a short squeeze or a market crash. Simpler’s traders are staying cautious as the variables play out this week.

This market can leave traders questioning whether they want to start trading or even continue trading.

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Rising interest rates will not be the single catalyst to crash the stock market.

Across-the-board drops in the market last week fanned fear among traders, and the overall market could tumble further to the downside. Disappointing and unsettling economic data – struggling jobs numbers, rising consumer and producer prices, weak retail sales, higher mortgage rates – combined with inflation fears and pain only heighten the possibility of lower lows in the market.

The volatility in this bear market has created a more intense level of complexity – and risk – for traders. Fed action may further complicate this environment, and traders should consider not being in any hurry to challenge volatile market movement.

The market bounce may lead to a continued relief rally, or just fizzle as the bear market takes hold further.

Staying light in positions and nimble in actions is the continued strategy for Simpler’s traders who are focusing on shorter-term positions.

There is no sense of urgency to hop into this market right now. Wrong timing for entering a trade only fuels the old adage that the stock market is an equal opportunity dream killer.

Stay awake as the stock market redefines this volatile trading environment.