A hot labor report has the stock market selling off for fear the Federal Reserve (Fed) will see the positive jobs data as a sign to continue raising benchmark interest rates.

The up-and-down cycle of last year continued into the first three trading days of the new year with the stock market following a positive day with a gap down today.

With stair-step economic data still to be released, the first month of the year could set the stage for another wild and crazy stock market.

Strong labor data fuels stock market selling

A robust labor market continues, according to the latest ADP National Employment Report showing 235,000 jobs added last month. This far outpaced the 153,000 estimated by economists, and annual pay was up 7.3% year-over-year in December, the report stated.

The news set off selling in the stock market which sees a strong labor environment as a signal for the Federal Reserve (Fed) to maintain its economy-tightening monetary policies.

As detailed previously in Simpler Insights, the Fed plans to continue raising benchmark interest rates to curb inflation which is fueled in part by a strong jobs market and higher wages.

“They’re going to keep being aggressive and raising rates,” said Bruce Marshall, Senior Director of Options and Income Trading at Simpler Trading.

Bruce has been in the mix of the stock market across three decades and expects more erratic price action ahead.

In the stock market today, the Dow closed at 32,930.08 points to fall 1.02% (dropping 339.69 points on the day). The Nasdaq dropped to 10,305.24 points for a 1.47% tumble while the S&P 500 crumbled 1.16% to 10,305.24 points. The stock market finished higher across the board yesterday.

Maintain trading strategy through uncertain news

Bruce cautioned that more economic news events are just around the corner and traders must prepare for sharp market reactions.

“We’ve got a lot of things in the background that are weighing on the market,” said Bruce. “We are at a pretty critical point here. We don’t want to get too bearish, too soon ahead of a bunch of important data that’s coming out.”

Bruce has maintained an ongoing strategy of shorter time frames on trades and taking profits when available. He adapted to this trading plan last year, and doesn’t plan to shift back to his long-standing trading strategy of sitting on trades for days or weeks.

The continuation of wild swings this year – down the first day, up yesterday, and down again today – has Bruce cautious moving forward.

“It really makes it tough to trade or get any kind of direction going,” Bruce said. “In this kind of market every data point is critical and we get these wild swings.”

Despite the constant up-and-down swings and uncertainty of upcoming news events, Bruce is always searching for trade opportunities.

“The smarter thing to do is to look at what’s upcoming and put a framework around where we want to trade,” Bruce said. “Just because we get some bad news, or good news, don’t think that it’s the end. The market is looking for light at the end of the tunnel.”

Bruce plans to take profits and avoid staying in trades over long periods. Staying in cash is a position for him and the shorter time frames on trades help him stay nimble in a wild market.

“We will keep looking for new ideas as they develop,” Bruce said. “Pick your trades wisely.”

Bruce continues to share his strategies and trade alerts in his specialized online trading community.

Analyze ‘hot topics’ for trade setups, profit potential

How can traders tell which trading setups to avoid and which ones have potential for profit? This is one of the many “Hot Topics” covered in the Simpler Trading Free Trading Room. Catch one of the regular live, free sessions offered for traders of all skill levels. Check out this next session for free – live in the Free Trading Room.