Current stock market conditions may be frustrating to retail traders, but seasoned traders have experienced this environment before.

Twenty years ago the market acted similarly and traders today may not like what lies ahead.

But there is always a way to trade what the stock market offers.

Pro trader expects “muddled” stock market ahead

The stock market opened today like it has many times over the last year – fast move in one direction and then turn back the other way.

All three major indexes today gapped down quickly before reversing into the close. The Dow at one point was down more than 250 points, but cut early losses before finishing just above flat.

In the market today, the Dow closed at 33,743.84 points to eke out a .03% increase (adding just 9.88 points on the day). The Nasdaq dropped to 11,313.36 points for a .18% stumble while the S&P 500 slipped slightly by .02% to 4,016.22 points.

John Carter, Founder of Simpler Trading, has seen this pattern before in recent months and in years past. The stock market is fraught with chop and has settled into an ongoing price range that never really breaks significantly lower or higher.

Price action across the board reminds him of the conditions in 2002 where the stock market was recovering from the 2000 crash. The market was “muddled,” John said, explaining how price movement was in a continual state of chop that lasted several years.

“I think this is a zone we’ll sit in for a while,” John said.

Stock market momentum fizzles midweek

Last week the market rallied and carried some momentum to start this week, but then slumped toward the downside into midweek.

“The market needed to catch its breath,” John said, pointing to ongoing media calls for the market and economies to crumple under inflation and suffer from recession.

“When the news is all bad and everybody is talking about recession, the market is aware of this,” John said. “There are a lot of people making huge downsize bets that the market is going to crash.”

He expects the market to maintain a volatile, choppy environment and traders must adjust trading plans. He doesn’t see the market crashing – barring any severe, unexpected situation – but he also isn’t planning on a big run higher anytime soon.

At this point John maintains a long-term bearish outlook while adjusting to bullish price action along the way. He holds this even if the market rallies higher, again.

The idea that the S&P 500 could get to the top of this ongoing range again – near 4,250 – is not out of the question, but will only happen if the technology sector fuels the Nasdaq higher.

“That doesn’t mean it’s’ all going to run happily ever after,” John said. “All we are is in a trading range. A breakout here doesn’t change that. We’ve been in a range for the better part of six months.”

Trader focuses on short-term trading setups

As the market works through its cycles, John continues his current strategy of mostly day trading and limiting long-term exposure.

He targets trades using iron condors, which can collect premium decay, or similar setups that limit risk while offering profit potential.

John has backed off efforts to target big plays using long swing trade setups. The shorter plays help limit risk as the market shifts back and forth in all the chop.

“I think this is going to be range-bound from hell for a bit,” John said, noting that many traders are stuck in downside trade setups and market makers know this.

As the market continues along this path, John is watching key signals showing in bonds, $TICK, the 10-day moving average on the indexes, and the put/call ratio, which is high.

He is also following earnings season reports where he has picked up on solid runs into earnings. This is where a stock price rallies higher heading into the next earnings report. This can set up a potential trade to the upside about two weeks before the report and selling several days before the report, avoiding holding through the report. 

John wants to see if the market can gain a little strength and follow through to the upside. His goal along the way is to target trade entries and exits while limiting exposure.

“Let’s try to extract the money from the markets and move on to the next trade,” John said.