Retail traders can expect more of the same this year versus last with the stock market continuing along its uncertain path.

How will this affect trading plans? What news will upset the market further?

Two pro traders from the Simpler Trading team offered their take on what is happening in the stock market and how they plan to react.

Will stock market volatility continue?

The next week in the stock market may set the tone for the rest of the year.

 A big question on the mind of many retail traders is, “Will the volatility continue?”

“Absolutely,” said Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading. “I have no reason to think that we’re going to suddenly enter some type of a dormant period. One-hundred point swings in the S&P 500 have kind of become the new norm. So leaving myself open to those ranges has great opportunity.”

Simpler’s traders are leaning into bullish possibilities in the near term as they watch the E-Mini S&P 500 (ES) index futures.

Henry sees a path for the ES to push higher toward 4,101 points before the index reverts back toward the downside.

Along the way he is keeping an eye on U.S. currency and treasury notes.

“Inside that bullish equity roadmap, I’m going to be watching the dollar and 10-year yields,” Henry said. “I think those have been helpful correlations.”

This roadmap could change pending economic news events next week.

Earnings season, Fed pressure stock market

As the near-term bullish sentiment plays out in the next couple of weeks, Simpler’s traders are also guarded about the overall long-term sentiment of the stock market.

“We are in the middle of earnings season and watching for clues to see if earnings are going to be good enough to push this market higher,” said Bruce Marshall, Senior Director of Options and Income Trading at Simpler Trading. “We also have a lot of economic data coming out next week.”

Earnings next week include high-profile technology companies Amazon, Apple, and Google. The Federal Open Market Committee (FOMC) is set to announce the next federal funds rate hike on Wednesday. The ADP National Employment Report is also set for release next week.

Earnings season has been a mixed bag of corporate sales and profit reports so far, Bruce said, with a theme of “it’s the economy’s fault.” He interprets this as causing companies to downgrade forward guidance as not very optimistic.

“We’re right in the middle of earnings season and anything can happen,” Bruce said. “I don’t see great things coming up with the economy. For all of the massive rate hikes we’ve had from the Fed (FOMC), I don’t think that’s been absorbed into the economy yet or the market for that matter. You have to be careful here.”

This scenario has repeatedly played out over the last year, and Bruce sees the same volatility continuing this year. He noted that in 2022 the stock market saw the largest number of 2% moves or better which has only happened a handful of years in the past.

“You know if you’ve been trading these super wild intraday swings we’ve been having it’s just crazy,” Bruce said. “It’s tradeable, but it’s tough. You’ve got to be on your toes and drink a lot of coffee.”

All that said, Bruce added, bad years can create opportunity for retail traders.

“We can trade that volatility and make money,” Bruce said. “You just have to be a lot more careful. That is the market we have and you can’t change that.”

Focus on what the stock market offers

Bruce again highlighted how traders need to follow economic news data.

This includes mass layoffs in the corporate world, the housing market continuing to struggle, Fed actions, and upcoming inflation data from the next U.S. Consumer Price Index (CPI) report due Feb. 14.

“We’re in a data driven market,” Bruce said. “I hate to have everything based on all this, but it is whether we like it or not. That’s what we have to focus on.”

As the data plays out the next few weeks, Bruce daily tracks stock market momentum with technical chart analysis of the ES.

Fed actions are likely the trigger that sets the stock market moving rapidly in either direction, Bruce said.

“If the Fed comes in pretty dovish this time and only cuts 25 basis points and says it may not cut as much in the future, that could be a different story,” Bruce said.

Odds are, even with a dovish rate hike next week, that the Fed continues more increases through the end of the year.

With these prospects ahead, Bruce works to stay positive in his trading plan, but the charts are revealing more bearish sentiment than some traders may like.

“We can still trade nicely in this market,” Bruce said. “You just have to have tighter stops with maybe smaller position sizes.”

Controlling emotions and not “chasing” trades is an important part of traders’ trade management and risk assessment.

“Don’t take every setup – take the good ones and leave the so-so ones alone,” Bruce said. “Watch out for the big week next week. Be ready for it.”