Here’s My Trading Game Plan Today – Volatile Conditions

Posted 9:30 AM ET – Let’s keep the comments light today. There are opposing market forces and that is creating a lot of volatility from one day to the next. The price action is news driven and once the momentum is set, the market continues in that direction. Most of this is program driven. This is a low probability environment for longer term swing trading, but it is great for day trading. This morning the jobs report came in at a miserable 210K (500K+ expected). That tells us that the economy is not growing as quickly as expected. The silver lining was that hourly wages only increased .3% and that will take some pressure off of inflation (labor is the highest input cost for companies). The market reaction was bullish. Traders see a weak jobs number as dovish for interest rates because it gives the Fed breathing room. I would caution that line of thinking. The Fed said this week that inflation is NOT transitory and that it is persistent. Powell talked about accelerating the pace of tapering. Central banks around the world are ready to ease QE and some have started to hike rates. Declining economic activity and rising inflation have never been a good combination for the market (longer term). The next FOMC meeting is in 12 days and I doubt we will test the all-time high before then. Stock valuations have not been this rich since the tech bubble of 2000. Perfection is priced in and the back drop is NOT perfect. Swing traders should be keeping long risk exposure to a minimum. At most, have a few nice bullish put spreads on. Keep your distance and take advantage of accelerated time decay. Watching the day to day price action can give you whiplash. This is a warning sign that conditions are changing. Day traders should wait for the early action to unfold. Once the market momentum is established, join it. When the move starts to stall (tiny bodied candles, mixed candles, compression) you should start to take gains (scale out). When a reversal looks likely, take the remaining gains and consider trading in the opposite direction. In general, I prefer to trade from the long side. Wait for those dips and buy. If I am trading the short side I do NOT to spread myself across more than 1 or 2 stocks and often I just trade S&P 500 futures. The snap back rallies can be violent and I need to close those trades quickly. The market is going to try to rally above the high from Thursday. Long green candles stacked with little overlap and a breakout on the first attempt would be bullish. Give it time and see if that breakout holds. If it does, we will grind higher. If the market quickly backs off of $460, take a deep breath and wait. Bullish speculators will be anxious to buy the open and they could quickly be flushed out. Look at the price action the last week. Understand what the bars are telling you!! From my viewpoint, we can expect volatility. There is no reason to chase a move. You will have plenty of opportunities to enter trades on your terms. Be patient and wait for those set-ups. Support is at the low from Wednesday and resistance is at the high from Wednesday. These are “inside days”. . .

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