Inflation continues to rise, yet darling stocks like those in the technology sector and essential commodities such as oil have moved higher in price.

Traders must unpack seemingly more and more variables to develop a sense of where this market is moving.

The benchmark S&P 500 is off to a rough start this year and has struggled to keep its head above the raging rapids of wild market movement. The long-favored technology-laden Nasdaq has faltered as well, and experienced sizeable pullbacks due to huge selloffs. 

Technology stocks are expected to regain previous highs. While neither technology nor small-cap stocks are “underwater,” support for both has taken some hits.

For traders who rely on technology for home, school, and work, this duplicity makes no sense. However, it’s important to remember that traders trade momentum – not the stock.

As tech keeps bouncing, the direct 10-year interest rate (TNX) is the index that measures changes in the market and it looks to be gaining momentum. When the market encounters a positive divergence, as it did at the beginning of the year, this changes what and how Simpler’s team trades. The index indicates the current price trend may be weakening or even changing direction.

This affects consumer discretionary spending and technology in a negative way. Streaming services, retail shopping, and hotels are all examples of companies that consumers do not need. When rising interest rate hikes startle the market – especially technology – Simpler’s traders adjust their trades to inflation-friendly stock. 

After policymakers made their announcements regarding faster rate hikes – banks, industrials, energy, and materials picked up where technology stumbled. Simpler’s traders are keeping their eyes wide open on these sectors.

In the midst of inflationary pressures, Simpler’s traders are looking to energy stocks, such as the long-standing companies. Big names in energy appear to be in various stages of a breakout and are being watched closely on the charts.

When interest rates rise, banks are the clear winners taking the most benefit from the rising rates. The profit margin of banks is based on the percentage difference between funds bought and sold. When interest rates rise quickly, so do the fees and rates banks can charge consumer and corporate customers – making these institutions especially attractive to investors.

This could be time for traders to rotate into more market-friendly positions and sectors. 

Technology could still bounce back. Simpler’s traders haven’t counted out this profit center just yet.