In this article:

• The technology needed for higher moves
• Economic data, Fed affect the market
• Weak energy won’t support an uptrend

Traders are always looking for a little extra “insight” into what is happening in the market.

Each week Simpler Trading delivers that insight through special reports.

The week ahead is setting up to be a volatile one as earnings season kicks off, Elon Musk tanks Twitter, and more economic data is set for release.

(Check out the free video, above, for insight into trading this changing market.)

Targeting these stocks for higher moves

Following the sharp selloff today, traders are searching for tickers that are better positioned to move through the downtrend.

Several stocks have shown patterns of higher highs and higher lows with signals of a compression squeeze setting up over the next few months. These tickers aren’t targeted because of something “imminent,” but are being watched because the patterns may reveal plays along the way.

Four “to watch” stocks include Enphase Energy, Inc., (ENPH); Bristol Myers Squibb Co. (BMY); Alphabet, Inc., (GOOGL); and Tesla, Inc., (TSLA).

While all of these were caught up in the selloff, longer term patterns are what Simpler’s traders are watching. Watching movement in these tickers helps traders follow the ideas and pattern development that Simpler’s traders target for profitable setups.

Another ticker to watch, technology stock Apple, Inc., (AAPL) moved back above its 50-day moving average last week. While a positive signal, the heavyweight faces analyst downgrades to company earnings for this year and next. The company is due to report second quarter earnings later this month.

Simpler’s traders have held that if Apple falls the market could spiral downward. Here’s action in Apple which closed today at: 145.92 (down .76%). Apple grew from a pandemic low of 57.21 in March 2020, but is down from 182.01 since Jan. 1. Apple is a leader in the technology space and a high-value stock within the Dow, Nasdaq, and S&P 500.

Rally sessions fail as market falls back

Rally sessions last week couldn’t hold into this week as the market sold off throughout the day.

The technology sector, which is heavily weighted in the Nasdaq, took the brunt of selling on Monday.

In the market today, the Dow closed at 31,173.84 points to fall .52% (dropping 164.31 points on the day). The Nasdaq dropped to 11,372.60 points for a 2.26% tumble while the S&P 500 crumbled 1.15% to 3,854.43 points.

This new round of gapping down canceled any follow-through price action needed before a market bottom forms. The rallies didn’t have high enough volume to carry an uptrend.

Also pushing down this bear market is the continual impact of elevated inflation levels that are rapidly changing into fear of recession. Traders are watching for further aggressive rate hike action from the Federal Reserve (Fed) and inflation beginning to cool off before expecting this bear market to lose its grip.

This choppy, uncertain trading environment leaves Simpler’s traders staying highly selective in putting any new money to work. They are also prepared to go lighter on positions should the market continue this tailspin.

Overall, the markets remain highly sensitive to economic data as well commodity prices and interest rates. Expectations are for this dynamic to remain in place until sufficient information is provided to instill confidence among market participants – investors and traders.

Last week economic data dominated sentiment as market participants sorted through confusing reports regarding the strength of the economy and the possible impact this data might have on Fed policy. Comments from Fed officials last week didn’t clear up the confusion.

This week another round of inflation related data will be released.

A metric favored by the Fed – Core Consumer Price Index (CPI) – is due for release on Wednesday. Investors are anticipating June numbers to be less than last month, but higher than last year. The CPI measures consumer costs for important staples such as housing, gasoline, utilities, and food, and shows how inflation is holding at 40-year record levels.

Another inflation report – U.S. Producer Price Index (PPI) – will be released Thursday. The PPI tracks the change in wholesale cost – the price of goods sold by manufacturers. And, Friday will bring the U.S. Retail Sales report and Consumer Sentiment – all numbers closely watched by the Fed.

Expectations are that it will be difficult for a market bottom to form until there is additional data supporting a slowdown of inflation coupled with acknowledgement from the Fed.

Energy is weak, looking for tech moves

Reviewing market action last week can provide insight into what is happening in current sessions.

While the bullish movement made some progress with rallies last week in key market areas, this bear market isn’t giving up as shown by the gap down Monday.

A key area to watch is the rotation from inflation sectors such as energy and back to deflation sectors such as technology.

The importance of this area is because the energy sector makes for weak leadership that is not big enough in market cap to carry the overall market. Technology stocks, however, can carry the entire market and make for more attractive market-wide leadership.

Bullish movement has made some progress in key areas – individual stocks, specific sectors – but rallies are at a disadvantage given the daily and weekly downtrends in the indexes. There haven’t been many nuances between the indexes lately. If one moves up or down, the others follow with the Nasdaq leading, the S&P 500 follows, and the Dow rounds at the chop-fest on average.

Simpler’s traders are watching whether any bullish movement can be seen in continued rotation from inflation stocks back to mega cap technology stocks, plus the dollar cooling off its push higher.

The team is also watching the Chicago Board Of Exchange (CBOE) Volatility Index (VIX) to see if it can support bullish movement by staying under 27. The VIX, which anticipates market volatility over the next 30 days, closed at 26.29 on Monday. To this point the VIX is showing active sell signals while possibly entering a support zone from 24-26. This will be a day-by-day barometer of market movement.

Why trade alone in market uncertainty?

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Try the room today and get access to the trading insights and free classes so you don’t have to trade alone.

Remain selective with trade setups

Last week the market fueled “hope-ism” among retail traders before undercutting all the positives to start this week.

Market internals showed a stronger market last week, but indicators aren’t so positive under the surface in the near term. This leads Simpler’s traders to remain very selective in choices of trade setups to manage risk in this volatility.