In this article:

• Nervous expectations ahead of Fed meeting
• Traders stay alert for internal market signals
• Trading strategies help guard ‘my money’

The stock market this week is “all about Friday.”

That’s when Federal Reserve (Fed) Chairman Jerome Powell is scheduled to speak.

What he may or may not say has the market so far this week moving sporadically, down from last week.

The focus is on Fed plans for raising benchmark interest rates, and how high.

Federal Reserve spurs market volatility

Fed actions are the focus among stock market participants this week.

The market appears transfixed in anticipation of topics that may transpire from the upcoming  Federal Reserve Bank of Kansas City Economic Policy Symposium in Jackson Hole, Wyo. The event includes a speaking engagement from Powell. What may transpire is unknown, but speculation is rampant.

The main topic of concern is the potential for the Fed to lean toward raising benchmark interest rates more than the market has “priced in.” Anything above 50 basis points higher in interest rates could set the market into a tailspin again.

Many analysts are expecting the Fed to push interest rates higher by 75 basis points, possibly more. (The next regular Federal Open Market Committee meeting is in late September.)

The Fed has become an elevated presence in the past two years, and an influencing factor, in market movement. This fuels the long-standing saying among traders, “Don’t fight the Fed.”

The change, many may argue, is that current Fed influence – no matter the intention – transforms into a negative reaction in the market. Somehow Fed actions are often taken as working against the market, unless that action falls well below expectations.

For example, an expected 50 basis point move higher in interest rates – the mark expected – may still negatively impact the market. Unless the actual result falls below that mark, the market tends to get bent out of shape.

For decades Fed transparency in its intent and actions fueled positive market responses. This has been detailed and cited in academic works.

One study concluded that mean market returns between 1980 and 2000 showed the “mean market return on the trading days the FOMC met was 5.7 times greater than the mean market return on non-FOMC training days.” (Study cited here.)

That study doesn’t seem to hold as much value over the past few years when traders have experienced volatility and unexpected market moves following Fed meetings and news events.

In this uncertain market environment, “Don’t fight the Fed” may have a new meaning that leans more to “stay out of the way.”

Staying alert to internal market signals

Simpler’s traders are dealing with this uncertain market by remaining alert to internal market signals and following established strategies for technical analysis.

Was the gap down Monday a “pause” so the market could refocus and start heading higher, or will Fed uncertainty keep things negative?

“It’s all about Friday and what we’re going to hear from Powell,” said Neil Yeager, Futures & Training Room Content Provider at Simpler Trading.

Neil expects a hawkish tone – more aggressive – from the Fed as it plans for a September interest rate hike. Still, the tone may be a bit more dovish than expected, Neil said, considering the political implications of a rate hike a month before midterm national elections.

In the market today, the Dow closed down .47% to 32,909.59 points (dropping 154.02 points on the day). The Nasdaq was flat at 12,381.30 points (losing just .27 points) while the S&P 500 stumbled .22% to 4,128.73 points.

Neil is keeping an eye on the S&P 500 (/ES) for price action at 4,120 because if it can break below 4,120, “it can get bad pretty fast.” Below this level of support, he would watch for a fall to 3,960. A bounce at 4,120 could spur a return higher to 4,260 or even above 4,300. These are all possibilities in this volatility with no guarantee of the market hitting these levels in either direction.

As the three major indexes fluctuate, traders are returning to old haunts, including the energy sector (XLE).

Danielle Shay, Vice President of Options at Simpler Trading, is following a squeeze pattern with positive volume and limited overhead resistance. There is a possibility of a pattern to the upside on daily and weekly charts, showing squeeze consolidation and volume inflow. She considers this a long-term trade and not a short-term option.

Danielle is leaning into energy moving higher because even as price has dropped the asset is showing relative strength and demand may pick up with lower gas prices encouraging travel and winter ahead where prices tend to increase.

“There isn’t much I like here on the buy side, even after (Monday) pullback, but I do have a keen focus on the energy sector for a couple of different reasons,” Danielle stated. “The sector has been exhibiting relative strength all year, it has experienced a solid pullback, and the weekly and daily chart structures still remain strong on the buy side.”

Any upside move depends on if buyers are willing to come into the market, Danielle said.

Trading strategies for uncertain market

What are some ways for traders to get through this up-and-down market?

Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading, shared his daily routine during the “power hour” session in the Simpler Options chat room. He approaches each new day with a goal of staying in a day trader mindset. He watches for patterns unfolding based on current market conditions and how he can navigate what the market presents.

Our traders work through a variety of methods and strategies in their trading, all based on personalized trading plans.

One strategy used as part of day trading is scalping.

Traders can use scalping to catch explosive trades even in the choppiest conditions. Scalping trades can range from a matter of seconds to minutes. This strategy offers high-potential with added risk that should be considered. 

Scalping allows for a lesser capital exposure, but with potential to scale gains. This system is designed to help traders with various account sizes execute potentially low-risk/high-reward trades in a short period of time during the daily trading session.

Part of scalping is to set up the trade and move out of the way. Scalpers should avoid chasing trades and use market conditions to take advantage of what is in front of them.

Simpler’s traders have referred to the current market as a “trader’s market.” Meaning traders can stay active – within their risk tolerance – and use market volatility as an advantage.

Still, our trader’s aren’t shy about staying in cash as a strategy. Staying in cash and protecting capital is a valid trading plan in an uncertain market.

Traders who want to avoid the sidelines must look to the market for direction.

Catching sudden moves is a trademark strategy for TG Watkins, Director of Stocks at Simpler Trading. He works to identify and pursue when key stocks make big moves. He focuses on precise entry and exits in his trading positions while avoiding weak stocks and false moves.

Simpler Trading delivers a variety of mentor programs, courses, and trading indicators designed to help traders in this volatile market.

Stock market creates another ‘my money’ day

Today was another revealing day in the stock market where structure is not looking good. There is the potential to get another leg lower, barring some market-inspiring news.

Even as the overall market struggles, Simpler’s traders are following targeted stocks that are holding up better than the surrounding environment.
The key in this stock market environment is having trading discipline and maintaining a mindset that “this is my money, and I’m going to only trade what I’m comfortable with losing.”