Welcome to the ‘Danger Zone’

by | Feb 28, 2023

If you wanna be an unstoppable trader, you must have the ability to foresee major market movements before they occur.

And after examining the recent evidence, I’m getting more and more convinced of a particular impending move in the overall markets.

The technical and fundamental indicators are starting to line up, giving me a clearer view of the big picture

That said, predicting the direction of the stock market is no simple task. (If it was, everyone you know would be a multi-millionaire trader!)

And while I’m starting to build a strong conviction in a certain prediction, I can’t guarantee when (or even if) this move will happen.

But I’d be remiss if I didn’t break down what I’m seeing in the charts and how you might be able to harness this information to your advantage.

With that in mind, keep reading and I’ll show you several reasons why I think the market is headed lower soon.

The SPY’s Technical Troubles

In case you hadn’t noticed, the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) has been in a steady downtrend for the entire month of February.

This downtrend comes after a period of sustained bullishness that saw the index ramp from $356 in October 2022 to a near-term high of $416 on February 2, 2023. 

But in the big picture, the SPY has basically gone nowhere for half a year. (It’s trading just $4 under where it was exactly six months ago.)

For all of the talk of a “new bull market” forming in December and January, the numbers aren’t supporting that thesis. Quite frankly, I don’t see it. 

The longer the SPY stalls near the all-important $400 level, the more danger there is of an impending dump in the index.

In other words, welcome to the danger zone!

I think a lot of this has to do with macroeconomic factors. In my opinion, the market is still digesting how higher interest rates will affect corporate bottom lines moving forward.

This uncertainty has led to a palpable lack of momentum in the markets right now, making it hard for me to believe that the SPY is gonna soar well past $400 anytime soon. 

Plus, another set of indicators is making me lean bearish as well…

Why I’m Avoiding Long Positions Right Now

In a recent letter, I talked about an indispensable chart for the current market environment — the Invesco DB U.S. Dollar Index Bullish Fund (NYSEARCA: UUP).

Why is the U.S. dollar so important to watch right now? It’s simple…

The stronger the U.S. dollar gets, the weaker the stock market becomes.

So, as UUP continues to gain steam, I’m getting more and more bearish on stocks. 

And this week, the U.S. dollar has kept getting stronger as stocks have been looking worse. 

Do you see the connection yet?

It can’t get much more clear than this. The bearish indicators are screaming at us!

To get more specific, let’s look at a stock I was trading long last week, Microsoft Corp. (NASDAQ: MSFT)

I traded this almost perfectly, catching the bounce on its first green day. But because of the bearish market conditions, I knew I had to get out quickly. I bought short-dated calls and sold them that day. (You can read my full trade breakdown here.)

Sure enough, I was right…

Days later, MSFT isn’t even close to getting back to where I sold my calls last week. 

MSFT’s price action speaks to the fragility of the overall markets right now. I bought calls and sold them quickly only because it was a bread-and-butter, first green day setup for me.

But unless I find undeniably perfect patterns, I’m not going long on anything right now…

And I suggest you take the same path until we get a big dump in the markets or a completely different technical picture.

Final Thoughts

Nothing is certain in the stock market, but several key indicators are sending the same message, saying…

“Don’t go long, we’re in the danger zone!”

And until the technical indicators shift, I’m paying attention to what they’re telling me. 

Meet Mark:

Mark Croock is a former accountant who after studying under Millionaire Trader Tim Sykes turned his small account into $4.11 million in trading profits by applying Tim’s strategies to options trading.

He started Evolved Trader to pay it forward and help other traders learn how to leverage options


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