You don't need an on/off switch
Midweek Market Update March 8, 2023
Instead, use a volume knob
The world is filled with “either/or.”
The simple, two-choice question is a heuristic; a shortcut used to come to a quick decision. A binary option with no middle ground and no other possibilities.
On or off?
Hot or cold?
Black or white?
Democrat or Republican?
Bull or bear market?
But the world is rarely that simple. And markets don’t operate in absolute terms.
Rather, price moves are measured by their relativity to previous levels. When the quote says the SPX closed the day up or down 50 points, that’s 50 points away from the previous day’s close.
The same relativity holds true when analyzing the overall markets or individual securities.
The absolute price level is worth knowing. But the real value comes in identifying the trend.
In which direction are prices moving?
It’s not necessary to declare a Bull or Bear market. Rather, we are better served to consider whether the action is bullish or bearish. That type of thinking leaves room for adjustment and leads to better decision making.
Market exposure doesn’t have to be an “on/off” switch. Instead, think of it like a volume knob. Positions can be dialed up or down in size depending on market conditions and the reward/risk potential.
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It may make sense occasionally to be “all in” or “all out,” in absolute terms. Your written trading plan should define those circumstances. But adding and reducing exposure in tiers is a commonly used, and very helpful tactic.
So the next time someone tells asks (or tells) you it’s a bull or bear market, try to shift your thoughts away from the absolute and instead, consider whether prices are moving in a bullish or bearish manner.
It isn’t an all-or-nothing question. There’s more to it than that.
Even Jerome Powell agrees.
Two days of Jerome Powell's testimony and some hotter-than-expected jobs data (ADP Employment, and JOLTs report) are behind us now and the markets don’t seem to be impressed.
Another late-day rally did help improve the charts slightly.
QQQ has been stronger and so far has held above Friday’s gap, while SPY dipped lower. IWM is weakest and moved deeply out of the congestion zone before rallying to close back inside.
Conditions continue to degrade a bit near term, but overall the picture hasn’t changed much. The major indexes are still above recent support levels and their respective 200-day moving averages.
There hasn’t been much in the way of bullish news or economic data. At the same time, it’s hard to get too bearish until and unless those levels are broken.
As usual, and like Jerome Powell and the Federal Reserve, we are left awaiting more data. The next significant announcement will be Nonfarm Payrolls, coming out Friday morning, March 10, at 8:30 AM.
SPY - Dipped below the 50-day MA before rallying to close above.
QQQ - Has been a bit stronger and was actually able to close above both the 8 and the 21-day EMAs today.
IWM was beginning to look alarming as it traded below the congestion zone and the March 2020 low anchored VWAP. At the close, however, it’s pretty well sandwiched between two anchored VWAPs and the 50-day MA.
DIA - Needs to stay above the support line and the 200-day MA.
DXY - possibly, maybe hinting at indecision and a potential reversal at previous support/resistance.
VIX - Not signaling much either way
An interesting update to seasonality:
Obviously, this is not the basis of any trading decisions. But it is interesting to watch these tendencies play out.
That’s it for the Midweek Market Update.
You will see some additional articles coming in the next few days and weeks. The topics will be centered around trading plans, routines, and good habits. I think you’ll find them really helpful.
And as always, thanks for reading, subscribing and sharing with friends and fellow traders.
***This is NOT financial advice. NOT a recommendation to buy, sell, or trade any security. The content presented here is intended for educational purposes only.
Andrew Moss is an associated member of T3 Trading Group, LLC (“T3TG”) a SEC registered broker/dealer and member of FINRA/SIPC. All trades placed by Mr. Moss are done through T3TG.
Statements in this article represent the opinions of that person only and do not necessarily reflect the opinions of T3TG or any other person associated with T3TG.
It is possible that Mr. Moss may hold an investment position (or may be contemplating holding an investment position) that is inconsistent with the information provided or the opinion being expressed. This may reflect the financial or other circumstances of the individual or it may reflect some other consideration. Readers of this article should take this into account when evaluating the information provided or the opinions being expressed.
All investments are subject to risk of loss, which you should consider in making any investment decisions. Readers of this article should consult with their financial advisors, attorneys, accountants or other qualified investors prior to making any investment decision.
March 8, 2023 4:00 PM
Long: DE, QQQ
Options symbols are denoted as follows:
Ticker, Date, Call/Put, Strike Price
Example: VXX1218C30 = VXX 12/18 Call with a $30 strike