As the S&P 500 ETF Trust (NYSEARCA: SPY) bounces around today’s opening level of $358 — heading towards an ‘inside day’ with almost no price change — the market is at a pivotal inflection point…
And what happens next will likely come down to Thursday’s consumer price index (CPI) report (a key inflation metric for the Federal Reserve).
If the CPI shows that inflation is finally starting to cool, I expect the market to rip higher.
But if the report is similar to those prior in 2022 — indicating continually surging inflation in the U.S. economy — then we could see yet another leg lower in the overall markets very soon.
Right now, I think any trade based on market direction is a coin toss. It’s a guessing game, and as traders, we don’t want to play those.
Bottom line: There are no great risk/reward trades with this much uncertainty.
And when there’s this much confusion amongst traders, we must approach our game plans a bit differently…
Later in the week, I’ll go into more detail on the CPI report. But for now, I’d like to go over how Evolvers can navigate this period of uncertainty…
Don’t Overtrade
When the market is in a period of uncertainty and confusion, you should be trading less.
Think about it…
If the near-term market direction is less clear, why wouldn’t you slow your trading down?
There’s no reason to press an edge you don’t have.
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The more questionable trades you make, the more you open yourself up to the possibility of unrecoverable losses.
On the other hand, if you don’t make any trades over the next week, your account will be intact. You may not make a fortune, but you won’t lose a cent either.
That way, you’ll be able to deploy your cash once market conditions are more clear.
My advice? Size down, focus on the best setups only, and avoid FOMO at all costs.
Watch Your Charts Closely
Throughout my 10+ years as a professional trader, few exercises have been more valuable than simply watching charts.
Not trading … watching.
It might sound boring, but watching charts is one of the best things an aspiring trader can do.
Doing so teaches you the personality of stocks, the art of technical analysis, and the critical indicators that can help you develop your ultimate trading strategy.
I’m a technical trader, so chart-watching was vital to my early days of strategy development.
Now, I have an iron-clad trading strategy that’s made me nearly $4 million in verified profits. (If you don’t believe me, you can learn my entire strategy for free right here.)
So, when you’re watching charts this week, ask yourself the following questions:
- What price level(s) does the stock tend to trade above (support)?
- What price level(s) does the stock tend to trade below (resistance)?
- How does the daily trading volume correspond with the price action?
- How does the chart react when the share price nears the VWAP, 50-day moving average (DMA), or 200 DMA?
- Is the chart potentially nearing a first red day or first green day?
Then, once you’ve gotten a firm grasp on eyeing your charts, it’s time to look inward…
Trust Your Gut
Great traders have a ‘sixth sense’ of sorts. They have a knack for making the right moves, regardless of what the rest of the market is doing.
In other words, they trust their gut.
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A lot of this comes down to experience and time in the markets.
But even some of the most well-seasoned professionals can have trouble putting their money on the table when they have a strong conviction.
I’m not suggesting that you make wild bets this week in an attempt to trust your gut. Quite the opposite…
Instead, take this time to meditate on what your gut is feeling. Pay attention to the way you’re learning. Make notes.
Then, after a few more days of crazy market action, check back and see if your conviction was correct.
Final Thoughts
Trade safe and be careful during this period of uncertainty.
I expect more inconsequential, sideways price action until the CPI report drops tomorrow.
Once we have a clearer picture of how the Fed is viewing inflation, we can reassess our game plans moving forward.
